Oct 19, 2022
VOT Research Desk
Market Analytics and Considerations
Officials have highlighted that the Japanese Yen, US Dollar, BOJ, Fed, USD/CNY, CNY/JPY, and Crude Oil are all approaching 32-year highs.
Concerns about intervention are scare the market, but they may not be significant.
Despite the persistent threat of intervention from local authorities, the Japanese yen continues to weaken against the US dollar as it approaches technically significant levels.
Shunichi Suzuki, the Japanese finance minister, stated on Wednesday that they would be conducting more in-depth checks of market movements more frequently.
Masato Kanda, Japan’s Vice Finance Minister for International Affairs, has previously stated that covert intervention is a possibility. To avoid a “noisy” price change, the implication is that the Bank of Japan (BoJ) could be instructed to sell smaller amounts of USD/JPY
.
This would be consistent with Japanese officials’ messages that currency movements that are excessive, one-sided, and volatile are undesirable.
Haruhiko Kuroda, the governor of the Bank of Japan, has repeatedly stated that the central bank is committed to maintaining an extremely loose monetary policy. The majority of other central banks, on the other hand, are aggressively tightening.
The People’s Bank of China (PBOC) is the BoJ’s most important ally in their accommodative stance. China is also worried about its growth, so they are keeping their policies pretty loose.
With approximately 22% of Japan’s imports and exports passing between the second and third largest global economies, China is the country’s largest trading partner. The appreciation of the Chinese Yuan against the Japanese Yen will ultimately improve Japan’s economic prospects.
Only 10% of Japan’s imports, but 18% of Japan’s exports, come from the United States. Again, the land of the rising sun’s bottom line will eventually benefit from a higher USD/JPY. Japan enjoys a trade surplus with the rest of the world, so a weaker currency overall is in their long-term best interest.
Since Japan gets its energy from imports, the issue lies in the energy sector. Countries that export fuel account for 16% of imports. When examining the exchange rate, Japanese officials are concerned about this sector of the economy.
Although energy costs have decreased somewhat since the Russian invasion of Ukraine, they are still high. Using WTI crude oil as a proxy for energy pricing, we can see that when it is priced in Yen, the price paid is significantly lower than where it was in June. However, this is only the case if energy importers have sufficient hedging in place. A lower Yen would appear to be palatable to both the BoJ and Japan’s Ministry of Finance (MoF).It’s possible that a higher USD/JPY won’t be as bad as first thought.
