GS Bobby Lien USDJPY views and charts trading within 157.00 157.85 range this morning

USDJPY views and charts - trading within 157.00/157.85 range this morning

USDJPY opens around 157.25 in the Wellington morning (NY close 157.53) before settling around 157.80 into Asia morning.

*KATAYAMA: CONDUCTED JOINT INTERVENTION WITH US IN LINE W PACT

*KATAYAMA: WON'T HESITATE TO CONDUCT FURTHER JOINT INTERVENTION

*KATAYAMA: US HAS SAID JAPAN'S YEN SHOULD BE VALUED HIGHER

Please see below from Cahill (GS Research, MD) and Shah (FX Vol trading, MD) on latest JPY views over the weekend

Last week’s extraordinary reported intervention by Japanese and US officials to support the Yen marks a new chapter in the currency’s defense and another increase in both countries’ more aggressive currency policy. Initial estimates suggest cumulative intervention on Thursday and Friday was the largest 2-day defense in 15 years in terms of both size and coordination. But the market response, while significant, was small when considering the full scale of operations and US involvement. We think this demonstrates that recent Yen weakness is in line with market and macro fundamentals.

Ongoing intervention can help manage the currency as it has done to some extent all year, and Japan certainly has significant reserves at its disposal, but ultimately it would require a change in either global conditions or domestic policy settings to turn the tide. We think engineering repatriation would be a powerful tool, but comes with a number of other trade-offs and implementation difficulties.

Full piece (Including thoughts on USD, GBP, BRL, CHF, IDR and more)

GS FX Options Trading (Praneet Shah)

1/ Much larger than normal intervention sizes on Thursday (~$60bn vs ~$25bn on days in April/May intervention episode) and also now coordinated action with US in EURJPY (EURJPY used to avoid signalling broader USD selloff,... which risks UST selling).

2/ New intervention style: no forewarning – catching market off guard. Also unrelated to realised vol and more level dependent (despite all focus on USDJPY levels... EURJPY 187.50 level seems key - triggered both rounds of intervention.

3/ Flows more skewed to fading JPY strength via leveraged topside (166 line in sand). Surprisingly, little appetite to play for a continued move or buy optionality (1m atm 6.0v to 8.5v – approx. 1.9% straddle BE now).

4/ We have now broken 200d MA and both US/Japan side feel vested in maintaining JPY strength (they’ve gone ‘all in’ so wouldn’t fight it yet). Objective seems <158-160 USDJPY and JPY forward vol has traded lower to reflect this potential new tighter distribution.

5/ Short-term setup asymmetric for further moves lower in XJPY and likely more rounds of intervention this week if >158 (market still short JPY – especially CTAs and Japanese retail). We still haven’t ‘filled the gap’ to 147 from Oct25 (Takaichi election victory) – seems ambitious though, my target would eventually be 152/153.

6/ However, medium-term forces of repatriation are slow moving and backdrop is still one of loose monetary + fiscal in Japan which is bearish for JPY (unless they can move policy rates + actually realise inward FDI). Depending on eventual reserve depletion, could potentially be storing up for a much larger future move weaker in JPY (less ammo to defend FX later).

7/ Separately – overall picture for broader USD now seems negative as $JPY has turned and EUR$ breaking tech levels higher (positioning also caught long USD). Warsh potential loss of inflation fighting credibility – twist steepening most bearish signal for USD (lower front- end nominals + higher inflation/ term premium)

If you want to use the April episode to get some guidance..

1 - The price action feels similar to April-May this year