JPY in Focus: Markets on Alert for New Intervention Level Amid BoJ Measures

JPY: Markets to keep searching for new intervention level

Japanese authorities are already stepping up efforts to contain the unwanted impact on rates and FX of yesterday’s Bank of Japan meeting. The BoJ announced unscheduled bond-buying operations this morning as the 10-year JGB reached a 0.97% high. The top currency official at the finance ministry said authorities are on standby to intervene in the FX market if needed after the JPY slump.

The signals included in the latest BoJ announcement will probably be enough to keep markets stay on the bearish side of JGBs (i.e., 1.0% to be hit soon in 10-year JGBs). Today’s unscheduled bond operation appears more as a warning signal against excessively sharp moves in yields, but putting a hard ceiling below 1.0% would not be very consistent with the policy message.

On the FX side, there is a good chance that investors will keep adding pressure on the yen despite the FX intervention threat by Japanese officials, effectively pushing them into intervening to test the new intervention level. That may be as high as 152.50 or 153.0, and with the message from the Fed unlikely to give a sustainable respite to treasuries, it seems unlikely that there will be much incentive to take bearish positions on USD/JPY positions.