JPY: Crisis over? - Westpac

Sean Callow, Research Analyst at Westpac, notes that the Japanese yen remains the strongest G10 currency so far this year but at least this week has seen a pause in the rally, perhaps even a genuine turning point.

Key Quotes

“USD/JPY fell as low as 107.63 on Monday, ignoring weekend commentary from Japanese officials designed to convince markets that FX intervention to weaken the yen was possible despite this week’s meeting of G20 finance ministers and central bankers in Washington, DC.

Yet the pair had drifted back above 109 by Wednesday, without either a surge in USD or the Bank of Japan having to take direct action. It seems that a speculative market already firmly long JPY (according to CFTC) has erred on the side of profit-taking rather than pushing for say, 105. This has removed one potential threat to risk-sensitive currencies such as AUD. While Japanese investors have been net sellers of foreign bonds for the past 2 weeks, the emerging stability on USD/JPY suggests we should still expect that Japan’s ultra-low interest rates will encourage Japanese demand for foreign assets.”