Following the fall of the British Pound, the Japanese Yen, another vassal currency of the Western dollar-based financial system is crashing.
The Japanese Yen appears to be inexorably drawn to the Maginot Line of 150/USD as for the third time in less than a month, Japan’s ‘yentervention’ failed overnight.
As we detailed before the Asian open last night, Japanese Prime Minister Fumio Kishida stepped up the rhetoric against the weakening yen, daring traders to test him with threats of policy maker willingness to step into markets.
In the meantime, the weakening dollar brought little respite to the battered Japanese yen, which traded near a 32-year trough to the dollar at 149 yen, putting the major psychological barrier of 150 in focus.
The dollar-yen pair has strengthened around 3 percent in October, hemmed in by trader nerves following the Bank of Japan’s first yen-buying intervention since 1998 on Sept. 22.
They did test him… and it appears pretty clear than Tokyo stepped in (though not admitted)… and then the yen kept tumbling further…
That is strike 3 for yentervention.
Strike 2 was just last week…
And Strike 1 was on September 22…
“If dollar-yen rises past the symbolic 150 level, price action will naturally accelerate, so they probably want to halt it before then or buy time,” said Yuji Saito, executive director at Credit Agricole CIB’s foreign-exchange department in Tokyo.
“Price action over the past few days match their condition for action. They could step in any time between 149-150.”
The choices before Japanese policy makers are stark:
either relax the yield-curve control framework;
or be willing to yen the weaken.
Until then, as we discussed last month, further interventions are doomed to failure and is why this morning, Japan’s Finance Minister Shunichi Suzuki told reporters he won’t comment, when asked whether the government has conducted any stealth interventions in the foreign exchange market since Sept. 22.
“There’s absolutely no change to our stance that we’ll respond appropriately against excessive moves,” Finance Minister Shunichi Suzuki told reporters Tuesday.
“We’ll be watching markets with a sense of urgency today as well.”
Because while there clearly have been interventions, their half-lives are measured in hours if not minutes.
Indeed, as Bloomberg’s Ven Ram notes:
“there is no third choice really at a time when inflationary pressures in the US are likely to compel the Fed to keep going and causing inflation-adjusted yield differentials to move in favor of the dollar against the yen. “
Wasn’t it Einstein that said the definition of insanity is trying the same thing again and expecting a different outcome?
It appears Japanese policymakers have confirmed what many market participants have long believed about their extreme actions…
USDJPY back to pre-intervention levels. 150 next pic.twitter.com/ErjN7Ka00O
— zerohedge (@zerohedge) October 13, 2022
The choices before Japanese policy makers are stark: either relax the yield-curve control framework or be willing to yen the weaken. Until then, as we discussed last month, further interventions are doomed to failure and is why this morning, Japan’s Finance Minister Shunichi Suzuki told reporters he won’t comment, when asked whether the government has conducted any stealth interventions in the foreign exchange market since Sept. 22. Because while there clearly have been interventions, their half-lives are measured in hours if not minutes.
Indeed, as Ram notes, “there is no third choice really at a time when inflationary pressures in the US are likely to compel the Fed to keep going and causing inflation-adjusted yield differentials to move in favor of the dollar against the yen. “
As the Bloomberg strategist concluded:
The yen has declined more than 8% since I noted back in June that the currency is likely to approach 150 per dollar should those differentials widen — which is precisely what has happened.
Which is good… but if we are comparing calls, the yen is down more 23% since we wrote “Yen At Risk Of “Explosive” Downward Spiral With Kuroda Trapped.”