GS FX JPY Intervention

Quick note on what we know re JPY and what our traders (Praneet Shah, Global Head of FXO Trading and Shino-San, JPY trading in Tokyo) and strategists are thinking (Mike Cahill and team).

Bottom line: Short-term trading view is that the setup is asymmetric for further moves lower in XJPY and likely more rounds of intervention this week especially if USDJPY >158 (market still short JPY – especially CTAs and Japanese retail). We still haven’t ‘filled the gap’ to 147 from Oct25 (Takaichi election victory) – with that feeling ambitious, FXO trading target would look to be 152/153. Shino-San agrees on this target in the short term should we see a break of 155. However, inline with GIR view, notes that unless the underlying macro environment changes materially, carry trades could eventually re-emerge once the positioning adjustment has run its course. GIR think that outside of a change in either the policy mix or global growth outlook, encouraging repatriation would be the most powerful policy for influencing the currency over a long period of time.

Read on for more and do let me know if you’d like to discuss further!

What do we know from last week?

- Japan intervened Thursday in large size. *BOJ DATA SUGGEST JAPAN INTERVENTION OF ABOUT 8.45 TRILLION YEN

- The US Treasury did a rate check Thursday evening

- Japan may have done more small intervention Fri morning

- The US Treasury did a rate in EURJPY Fri afternoon

- The US Treasury intervened in EURJPY Fri evening (unknown if Japan were active too)

Number of headlines before a -1.5% move lower again in USDJPY to a low on EBS of 155.20. There was about 25bio$ that went through on the primary on that move (chart below). Japan’s Ministry of Finance confirmed on August 3 that Japan and the U.S. conducted coordinated yen-buying intervention, while also signaling that it would not hesitate to take further coordinated action if needed.

*MIMURA: WILL RESPOND TO FX IN COORDINATION WITH MONETARY POLICY

*BESSENT: WON'T HESITATE TO CONDUCT MORE YEN JOINT INTERVENTION

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

Views from Praneet Shah (Global Head of FXO Trading)

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

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)

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

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