The slippery slope is just getting more dicey for the Japanese yen currency, with all that is going on in markets since last week.
A more peaceful resolution in the Middle East is being challenged and regardless, USD/JPY continues to grind higher. The yen is very much in a situation of damned if you do, damned if you don’t at the moment. And nothing will change until the Strait of Hormuz actually reopens, not just theoretically as per what the US and Iran says it would.
With growing inflation risks favouring a more hawkish Fed over the BOJ now, the balance of risks have shifted to side with the dollar instead. Add in Japan’s continued economic and fiscal struggles, there’s just nothing that is going for the yen currently.
Japan’s ministry of finance stepped into the market to intervene at the end of April but that hasn’t resulted in anything. It was expected that any intervention wouldn’t last, but this one was made to look silly – not least with their poor timing in my view.
As mentioned at the time:
“It might sound counter-intuitive to not want to act during low liquidity periods, but there’s a certain nuance to it. The main thing about intervention isn’t so much so as the money but more so about the signaling. You want enough players in the market to get that signal and amplify it, so as to get the idea that “we shouldn’t mess with the MOF/BOJ”. Otherwise, that signal can get lost in translation if there isn’t enough liquidity follow through. And at the end of the day, it might just be passed off as more noise than an actual leading signal to traders.”
Either way, the fundamental backdrop in itself is working heavily against Tokyo officials and they damn well know that. It’s hard to keep bluffing on the poker table when you just simply don’t have the cards.
Eyes now will be on the 2024 high near 161.95 for USD/JPY. Will Japan let that level slide and open up another door to the floodgates? Or will they at least try to slow things down, albeit in a vain effort considering the current market backdrop?
It would be prudent for the ministry of finance to try and time any intervention with real hope of things changing with regards to the Middle East conflict. As much as there is “progress” between the US and Iran, I’m not sure that we are at a stage where the situation – especially with the Strait of Hormuz – is going to change for the better imminently.
So, any such intervention now will still be a play to buy time at best. And we all know how that worked out at the end of April already.
This article was written by Justin Low at investinglive.com.
