BUZZ-COMMENT-Intervention threat deters investors from seeking easy money

Credit: REUTERS/DADO RUVIC

Feb 22 (Reuters) - The threat of intervention is deterring investors from seeking easy money by buying the highest yielding major currency and selling the one that is undermined by the lowest interest rate in the world.

Japan is the only nation left with a negative interest rate while the dollar is supported by the highest rate for a major traded currency.

In the current environment where stocks are rising to record highs while currencies are quiet, more cash should be heading into carry trades and therefore demand for USD/JPY should be very high.

With USD/JPY close to the point that Japan's authorities last intervened to curb a yen drop, and the trade-weighted value of the yen weaker, those who want to buy have reason to worry, but any reserve might lead a more sustainable rally.

While USD/JPY is close to a multi-year high, it is far from overbought, and this unusual situation lessens the need for a correction, and if speculators are reluctant to short yen, any intervention would be less effective.

Dips may be shallow which is good for those invested in the dollar and bad news for Japanese firms that have forecast USD/JPY and EUR/JPY much weaker in the current financial year (ends March 31). If these firms are badly hedged as a result and are forced to adjust - the yen may come under much more pressure.

EUR/USD comment by same author

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USDJPY https://tmsnrt.rs/49JJ4Fm

(Jeremy Boulton is a Reuters market analyst. The views expressed are his own; editing by David Evans)

((jeremy.boulton@thomsonreuters.com))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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