Japanese officials are getting very uncomfortable with the recent yen weakness.
USDJPY sliced through 128 earlier, and looks set for a move to 130 in no time.
Finance Minister Suzuki repeated his mantra that “Stability is important and sharp currency moves are undesirable”.
Then he took it a step further, questioning the merit of the weak yen policy...
“Weak yen has its merit, but demerit is greater under the current situation where crude oil and raw materials costs are surging globally, while the weak yen boosts import prices, hurting consumers and firms that are unable to pass on costs.”
Suzuki added, “we will closely communicate with the U.S. currency authorities to appropriately deal with this issue.”
And he'll meet with Janet Yellen on the side lines of the G20 summit to do just that.
Any response is more likely to treat the symptoms rather than the causes, but it suggests that the speed of the recent moves has Japan's Ministry of Finance and the Bank of Japan sufficiently concerned to push back.
Structurally, there's not much they can do other than try and smooth out the volatility.
US yields keep on rising while Japanese yields are stuck below the 0.25% level (the BoJ has already been forced to step in and defend the yield cap), which drives traders to buy USD and sell JPY.
An interesting aspect to note here is with USDJPY ticking towards 130, we're seeing the Japanese 10 year yield push against the 0.25% yield cap - which in my mind feels like something will break.
The weak yen is making imports (even) more expensive, which just makes the problem worse for an economy which is highly import dependent across all sectors.
130 is a level that's been flagged as a potential pain point for a while, and US 10y yields (which typically correlate with USDJPY) are also within touching distance of 3%...
Summing up, be on the lookout for further statements or actual intervention in the next few days, and don't be certain it'll be easy to get long from here, but we believe a bit more pain is to come as our datasets are suggesting that retail traders are net short USDJPY 75:25 (shorts vs longs).
USDJPY sliced through 128 earlier, and looks set for a move to 130 in no time.
Finance Minister Suzuki repeated his mantra that “Stability is important and sharp currency moves are undesirable”.
Then he took it a step further, questioning the merit of the weak yen policy...
“Weak yen has its merit, but demerit is greater under the current situation where crude oil and raw materials costs are surging globally, while the weak yen boosts import prices, hurting consumers and firms that are unable to pass on costs.”
Suzuki added, “we will closely communicate with the U.S. currency authorities to appropriately deal with this issue.”
And he'll meet with Janet Yellen on the side lines of the G20 summit to do just that.
Any response is more likely to treat the symptoms rather than the causes, but it suggests that the speed of the recent moves has Japan's Ministry of Finance and the Bank of Japan sufficiently concerned to push back.
Structurally, there's not much they can do other than try and smooth out the volatility.
US yields keep on rising while Japanese yields are stuck below the 0.25% level (the BoJ has already been forced to step in and defend the yield cap), which drives traders to buy USD and sell JPY.
An interesting aspect to note here is with USDJPY ticking towards 130, we're seeing the Japanese 10 year yield push against the 0.25% yield cap - which in my mind feels like something will break.
The weak yen is making imports (even) more expensive, which just makes the problem worse for an economy which is highly import dependent across all sectors.
130 is a level that's been flagged as a potential pain point for a while, and US 10y yields (which typically correlate with USDJPY) are also within touching distance of 3%...
Summing up, be on the lookout for further statements or actual intervention in the next few days, and don't be certain it'll be easy to get long from here, but we believe a bit more pain is to come as our datasets are suggesting that retail traders are net short USDJPY 75:25 (shorts vs longs).
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