Yen intervention shakes things up

The past week came to an end with FX intervention very much in the driving seat. Despite rate decisions from the Fed, BoE and BoJ, with all three central banks leaving rates unchanged, efforts to weigh against yen weakness have triggered significant moves across currency markets. As of writing on Friday afternoon, USDJPY is down almost 3% over the week, with selling pressure weighing on the broad dollar, leaving the DXY index roughly 1% lower in the same period. Interestingly, there appears to be a degree of coordination, with suggestions of involvement by both the BoK and the US Treasury too. Indeed, the Treasury reportedly reached out late on Friday to the FX desks at major banks, asking they prepare to show EURJPY bids, and to convey that message to markets.

With Friday’s signals, and the late April/early May intervention round top of mind, markets are likely to start the new week braced for further efforts from the MoF, and potentially others, to top up intervention efforts. That adds another source of uncertainty in addition to Middle East risks and a busy calendar of events. Indeed, the week ahead plays host to CPI releases from Switzerland and Sweden, alongside jobs reports from New Zealand, Canada and the US. Taken together, volatility seems likely, with the buck set to trade under pressure for as long as dollar selling interventions continue. But as we have noted previously, without an underlying macro catalyst, such efforts are unlikely to produce sustained yen appreciation, opening the door to tactical dollar recovery once intervention efforts conclude.

You can read the Week Ahead in full here:

Authors:

Nick Rees, Head of Macro Research

Barry van der Laan, Senior FX Market Strategist

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