3 May 2016
JPY: Currency manipulator? – Rabobank
Jane Foley, Research Analyst at Rabobank, suggests that the sharp appreciation in the value of the JPY following the BoJ’s steady policy decision on April 27 re-focused the market’s attention on whether there will be a reaction from the Japanese authorities.
Key Quotes
“Comments from Finance Minister Aso over the weekend that “a 5 yen move in two days is clearly a one-sided speculative move and is extremely concerning” highlight that the degree to which the yen is unsettling the Japanese authorities. However, action taken by the US government makes it more unlikely that the MoF will be able to respond.
Aso made it obvious that he views the yen’s recent move as a product of speculative flows. He warned that “so that these speculative moves don’t continue, we will watch foreign exchange market moves with a sense of vigilance, and will act of necessary”. That said, the fact that USD/JPY continues to sink lower early in today’s session suggests that his words lack credibility.
On Friday the US signed into law new provisions of the 2015 Trade Facilitation and Enforcement Act which single out China, Japan, Korea, Taiwan and Germany as potential currency manipulators.
These 5 countries are now being monitored by the US government and if it is decided that they meet two of three specified criteria this would trigger enhanced bilateral engagement and remedial action. The criteria include a trade surplus with the US of over USD20 bln, a material current account surplus and persistent one-sided intervention in the foreign exchange market.
The value of EUR/CHF dropped sharply this morning as the market debated whether this policy would also impact the SNB’s ability to carry on with its policy of intervention. The SNB has made no bones about the fact that it suffers from an overvalued exchange rate and almost every theoretical measure would concur. This factor combined with the fact that Switzerland is a relatively small economy suggests that the US Treasury may be prepared to overlook the actions of the SNB. Japan, however, has no such excuse.
Unlike the CHF, the JPY is undervalued on most academic measures following its sharp downtrend in 2013 and 2014. Also, being a G7 nation, Japan has in effect pledged not to intervene in most circumstances (its forays into the FX market in 2011 followed its nuclear disaster). These factors make Aso’s warning at the weekend sound hollow and imply that USD/JPY may not yet have seen its lows.”
Key Quotes
“Comments from Finance Minister Aso over the weekend that “a 5 yen move in two days is clearly a one-sided speculative move and is extremely concerning” highlight that the degree to which the yen is unsettling the Japanese authorities. However, action taken by the US government makes it more unlikely that the MoF will be able to respond.
Aso made it obvious that he views the yen’s recent move as a product of speculative flows. He warned that “so that these speculative moves don’t continue, we will watch foreign exchange market moves with a sense of vigilance, and will act of necessary”. That said, the fact that USD/JPY continues to sink lower early in today’s session suggests that his words lack credibility.
On Friday the US signed into law new provisions of the 2015 Trade Facilitation and Enforcement Act which single out China, Japan, Korea, Taiwan and Germany as potential currency manipulators.
These 5 countries are now being monitored by the US government and if it is decided that they meet two of three specified criteria this would trigger enhanced bilateral engagement and remedial action. The criteria include a trade surplus with the US of over USD20 bln, a material current account surplus and persistent one-sided intervention in the foreign exchange market.
The value of EUR/CHF dropped sharply this morning as the market debated whether this policy would also impact the SNB’s ability to carry on with its policy of intervention. The SNB has made no bones about the fact that it suffers from an overvalued exchange rate and almost every theoretical measure would concur. This factor combined with the fact that Switzerland is a relatively small economy suggests that the US Treasury may be prepared to overlook the actions of the SNB. Japan, however, has no such excuse.
Unlike the CHF, the JPY is undervalued on most academic measures following its sharp downtrend in 2013 and 2014. Also, being a G7 nation, Japan has in effect pledged not to intervene in most circumstances (its forays into the FX market in 2011 followed its nuclear disaster). These factors make Aso’s warning at the weekend sound hollow and imply that USD/JPY may not yet have seen its lows.”