If The Currency "Power Ranking" Was Turned Upside Down, The (JPY) Yen Would Be Leading The Pack

Asia morning bites - 16.05.2023

The Japanese currency against the US dollar is the weakest of the main world currencies in 2022, having lost more than 20% in the last 12 months.

As a result of such a strong drop, the USD/JPY pair's quotations have reached their highest level since 1998. This year, the yen intervention took place, which the market may again fear.

The severity of the yen's drop may have been due to divergence in the Bank of Japan's monetary policy toward the world's other main central banks. The Fed raises interest rates, the ECB does, and the Bank of England or the Bank of Australia also raise interest rates. Meanwhile, the Bank of Japan continues to loosen monetary policy and keep market interest rates close to zero, also applying yield curve control. Nevertheless, the recent slump in the Japanese currency may have started to cause concern among Japanese policymakers and decision-makers.

Source: Conotoxia MT5, USD/JPY, MN

Japanese authorities are concerned about JPY weakness

Japan's Vice Minister of Finance for International Affairs Masato Kanda said on Thursday that the government is "extremely concerned" about the yen after it weakened to levels seen 24 years ago.

Kanda pointed out the recent "speculative, one-sided sharp movements of the yen", reasoning that the currency's decline cannot be explained simply by looking at the fundamentals and describing it as "excessive volatility". He assured that the government was coordinating actions with other countries, including the United States, adding that the government was ready to act on the currency market and was not ruling out any course of action, as reported by BBN/DJ. In addition, there has already been a meeting between Bank of Japan Governor Haruhiko Kuroda and Prime Minister Fumio Kishida, which may also have raised concerns among foreign investors.

Technical situation - USD/JPY

From a charting point of view, the USD/JPY pair's price has reached a potential resistance defined by the line drawn after the previous peaks in recent days. This line and the line drawn after the lows could form a possible expanding wedge formation. In the shorter term, this potential support could be located at the trendline and at the equilibrium of corrective movements, which at the moment falls in the vicinity of 141.10 JPY.

Source: Conotoxia MT5, USD/JPY, D1

What is being said about the yen?

In a statement to Bloomberg, the head of the currency strategy at Nomura Securities Co. in Tokyo said that there had been a three-way discussion between the BOJ, the Ministry of Finance and the Financial Services Agency and that this has a significant psychological impact on the market participants. Yujiro Goto also added that it also has something to do with the fact that if there was any plan to intervene, the government would coordinate with the BOJ. Goto pointed out that the risk of intervention and a change in BOJ policy or guidance this month has increased compared to a few weeks ago. In the summary of the Nomura Securities Co. representative statement, it was noted that some orders that accompanied bets on the USD/JPY above 145 could also be triggered.


Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service)

Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.

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Source: Fears of intervention targeting the Japanese yen (conotoxia.com)

Asia morning bites - 16.05.2023

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