Amidst fluctuating global currencies, MUFG delves into the potential for verbal intervention from Japanese officials, especially as the Jackson Hole Symposium approaches, which may carry significant implications from Chairman Powell's stance.
Key Observations:
USD/JPY Surge: There's been a noteworthy increase in the USD/JPY rate since the Bank of Japan's (BoJ) policy meeting in July. This uptick is reminiscent of the scenario leading to intervention in the September-October period last year.
Intervention Alert Scale: By analyzing previous Japanese language comments linked to past interventions, MUFG's Tokyo team developed an "Alert Scale." Based on this 1-8 scale, the current situation is assessed at about level 6. This suggests that the urgency hasn't reached the zenith that typically precedes actual interventions.
Upcoming Jackson Hole Symposium: Given the proximity of the Jackson Hole meeting, it's anticipated that Tokyo may escalate its rhetoric. If Chairman Powell delivers a hawkish speech, it could pose challenges for Japan's monetary stance.
Implications:
Balancing Act for Japan: Japanese officials are in a tight spot, striving to regulate JGB yields while concurrently curbing JPY's depreciation. If the USD continues its upward trajectory in the coming week, Tokyo might have to recalibrate its approach.
Potential Responses: In the event of further escalation of the dollar next week, Japan could react by allowing an uptick in JGB yields, particularly if US yields also rise. This move might be paired with amplified rhetoric. The trajectory of USD/CNY, influenced by PBoC fixings, will also be crucial, as its recent downward correction has acted as a ceiling for USD/JPY.
Conclusion: MUFG underscores Tokyo's potential for heightened verbal interventions, especially with the Jackson Hole Symposium on the horizon. Depending on Chairman Powell's remarks, Japan may need to make pivotal decisions, particularly in balancing its yield and currency objectives.
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