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Can USD/JPY Intervention Succeed?

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Top Stories

  • BOJ Intervenes sending USD/JPY to 80.00
  • Spanish auction bid to cover above 2.0 helping ease concerns
  • Nikkei up 0.23% Europe higher by 1.0%
  • Oil at $91.85/bbl
  • Gold holds steady at $1666/oz.

Overnight Eco

  • NZD Employment Change (QoQ) (2Q) ) 0%
  • NZD Unemployment Rate 6.5%
  • EUR German Factory Orders s.a. (MoM) (JUN) n/a
  • EUR German Factory Orders n.s.a. (YoY) (JUN) n/a

Event Risk on Tap

  • USD Initial Jobless Claims expected at 408K
  • USD Continuing Claims

Price Action

  • USD/JPY soars two yen to 80.00 in BOJ inetrevention
  • AUD/USD drifts to 1.0620 as anti-dollar flows weigh
  • GBP/USD lower but 1.6350 supports
  • EUR/USD continues to dive to 1.4220 on dollar strength

The BOJ joined the SNB by staging an intervention in the currency markets today that drove USD/JPY higher by more than two big figures as the pair traded above the 80.00 level for the first time since July 12th. The BOJ also expanded its QE program by 10 Trillion yen in attempt to create a more accommodative monetary policy and weaken the unit further.

BOJ Governor Masaaki Shirakawa stated that "With Japan facing various challenges, including power shortages, there would appear to be demerits to yen rises, such as a deterioration in business sentiment, and companies shifting operations overseas." Japanese monetary officials remain greatly concerned that if USD/JPY remains below the key 80.00 for a prolonged period of time it will depress the export driven Japanese economy just as the country tries to recover from the devastating impact of the earthquake and the tsunami that hit last March.

Japanese exporters have been reeling from the strengthening of the yen with some key corporates seeing their profits erode by 80% under the current exchange rate regime. Most Japanese corporations have set their exchange rate expectations for USD/JPY at 81.00 and EUR/JPY 113.00 and the current one way action in the pair threatened to strangle the country's economic recovery in the wake of the natural disasters in Q1 of this year.

This is the third time since 2010 that the Japanese monetary and fiscal officials have attempted to intervene in the FX markets and each time prior USD/JPY gave up its gains within several weeks of the event. Most analysts remain skeptical that today's intervention efforts will prove successful given the slowing global economic growth and the broad anti-risk sentiment present in the market today. Over the short term however, the pair could see further upside as late shorts are squeezed by the BOJ.

Tomorrow's NFP report could prove critical to the near term direction of the pair. With market participants expecting a very weak print of 70K-90K new jobs, any reading above 100K could spur a relief rally in risk and send USD/JPY above the 81.00 figure as shorts continue to scramble for cover. However, if the US economic news continues to miss to the downside USD/JPY will have a very difficult time maintaining 80.00 irrespective of BOJ's efforts to prop it up.

FX Upcoming

Currency GMT EST Release Expected Prior
USD 12:30 8:30 Initial Jobless Claims 408K 398K
USD 12:30 8:30 Continuing Claims 3.703M

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


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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