The massive intervention by the BOJ to weaken the yen sent USD/JPY more than 200 pips higher. The move is far from over. The first intervention in 6 years comes after months of failed verbal intervention. Here are 5 reasons why this move will be powerful.
There are significant differences between the failed interventions by the Swiss National Bank and this move:
- Long buildup: this move followed months of warnings and negotiations with other central banks. While this move is the sole work of the BOJ without joining forces, central banks and traders were anticipating this move and learn to accept it.
- Japan means business: they keep on pushing forward, all the time. It wasn’t a one time move.
- US figures support the move: The intervention comes after the influx of bad US figures ended. Recent numbers such as are better – Non-Farm Payrolls and retail sales have been hopeful. Better US figures mean a stronger USD/JPY.
- Europeans are OK with it: They would prefer a coordinated move but they do note the rapid equiproportional appreciation of the yen and said it was bad for the recovery.
- The Chinese factor: China recently passed Japan as the world’s No. 2 economy. China enjoys a low-valued currency which it fully controls. The US has urged China to release the yuan but the moves have been subtle to say the least. In the meantime, Japan’s yen strengthened and weakened Japan’s economy. A weaker yen could indirectly be a political interest of the US. So maybe the move wan’t coordinated with the US, but they might back it somehow.
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