Japan verbally intervenes as USDJPY pushes higher

  • USDJPY
    (${instrument.percentChange}%)


Source: www.tradingview.com

The spread between the US 10-year bond and 10-year Japanese Government bonds (JGBs) is a key driver of the USDJPY.

The US 10-year is elevated due to US economic strength and the possibility of rates remaining higher for longer. At the same time, JGBs are being held artificially low by Japanese authorities as they enforce yield curve control. The Bank of Japan allows the 10-year yield to fluctuate plus and minus 0.5 percentage points from zero but will purchase 10-year JGBs at 1% through fixed-rate operations.

As result, the US 10-year/JGB spread has expanded in favour of the US 10-year. This has impacted on the USDJPY, which has also moved up in favour of the USD. The correlation coefficient between the spread and the forex pair is a meaningful 91%.

However, Japanese authorities have intervened in the forex market when they deem the JPY as too low. In September, last year, Japan participated in Forex market intervention. Thereafter, Japanese officials carried out three interventions. These interventions occurred due to the dollar's value surpassing 145 yen, prompting the Ministry of Finance (MOF) to act. The MOF's approach entailed acquiring yen to offset this sharp rise, thereby recalibrating the currency pair to around 140 yen.

Why Trade with FXCM

Commission free with fast, efficient execution.

USDJPY is currently trading around 147.50 which is above the previous levels of intervention. Thus, it comes as no surprise that Japan has verbally intervened. Masato Kanda, Japan's top currency official, today said that "we won't rule out any options if speculative moves persist." Whilst there was an initial effect, the verbal intervention remains unconvincing, with USDJPY maintaining an underlying support.

At current levels there is a real risk of more forceful intervention by Japanese authorities and upside is likely to be limited.

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

${getInstrumentData.name} / ${getInstrumentData.ticker} /

Exchange: ${getInstrumentData.exchange}

${getInstrumentData.bid} ${getInstrumentData.divCcy} ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%) ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%)

${getInstrumentData.oneYearLow} 52/wk Range ${getInstrumentData.oneYearHigh}
Disclosure

Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.

Past Performance: Past Performance is not an indicator of future results.

Spreads Widget: When static spreads are displayed, the figures reflect a time-stamped snapshot as of when the market closes. Spreads are variable and are subject to delay. Single Share prices are subject to a 15 minute delay. The spread figures are for informational purposes only. FXCM is not liable for errors, omissions or delays, or for actions relying on this information.