MUFG’s Lee Hardman notes that the US Dollar’s (USD) rebound alongside higher Oil prices has lifted USD/JPY back towards 158.00, close to levels seen before suspected Japanese intervention. He highlights that authorities in Japan and the United States (US) are stressing close coordination on currency volatility, leaving the door open to further intervention while the Middle East conflict continues to weigh on markets.

Authorities keep intervention option open

"The rebound for the US dollar and the price of oil has helped to lift USD/JPY back up towards the 158.00-level overnight where the pair was trading prior to the last bout of suspected intervention from Japan on 6th May. It is making market participants nervous that Japan will step back in again soon to support the yen again."

"According to media reports Japan has spent around JPY10 trillion to support the yen, and further intervention will likely be required if the fundamentals factors that driven a weaker yen do not change soon. The Middle East conflict has triggered higher energy prices which have hurt Japan’s terms of trade, and yield spreads have moved against the yen recently as rate hikes have been priced in for other major central banks."

"After meeting with Finance Minister Katayama overnight, he posted “I am pleased to reaffirm the strong economic partnership between the US and Japan. The level of communication and coordination between our teams in addressing undesirable, excess volatility in currency markets continues to be constant and robust”. The comment indicates that the US remains supportive of Japanese intervention to support the yen."

"She believes that they have “full understanding” that intervention is among options for addressing excessive volatility in the foreign exchange market. It leaves the door open for further intervention to dampen yen weakness while the Middle East conflict remains unresolved."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)