The last 16 hours have been a bit off colour for Japan in their attempts to stem the depreciation in the yen. For one, they reportedly intervened in the market to try and capitalise on a softer US CPI report during the start of US trading. Then, they even allowed for said move to be leaked quite quickly after.
I mean, sure, we all had our suspicions. But it's quite unlike Tokyo to so easily let the news come out just like that.
USD/JPY is down nearly 250 pips since before the US CPI report but somehow, this still looks like a failure on the part of Japanese officials. If you want to frame it in another way, the pair is up some 170 pips from the low of 157.40 after the reported yen-tervention.
So, why did Tokyo decide to make a move during one of, if not the most liquid period in trading yesterday?
The obvious being that the US inflation numbers were a miss on estimates. And the details also revealed softer price pressures in general. All of that says the narrative that the disinflation process is still playing out, although I would argue that it is still continuing at a rather gradual pace.
Is all of that enough to compel the Fed to cut rates in September or at least three times this year? Well, that's a topic for another debate. But on the latter, I still have my reservations.
In any case, Japanese officials were certainly hoping to get some kind of bang for their buck in driving USD/JPY lower alongside some added dollar selling.
Their previous intervention effort came during illiquid market hours and that has been faded during the course of May and June trading. So, this is definitely something new. But is this really a sign of innovation on their part? Or is it a sign of desperation, in the sense that they are running out of ways to stop the yen from falling much further?
In my view, it matters little whether it is one or the other. Ultimately, it comes down to the fundamental narrative in Japan.
I still don't see the BOJ being convincing enough to tighten monetary policy aggressively. And I reckon that's a view that broader markets are also sharing for the most part even until now.
So, yes. There is no doubt that Tokyo is still trying to plant its feet on the ground in stopping further depreciation in the yen. But it doesn't help their case when that is really the only pushback factor with little else to drive traders into looking at the other direction.
Even when it comes to the technicals, USD/JPY is still retaining its uptrend for the year after the swings since yesterday:
