Intervention Risk Fuels Yen Cross Breakdowns Amid Dollar Strength
The recent price action in EUR/JPY and AUD/JPY has led some to believe that the Yen is surging broadly. However, a closer look at the numbers reveals a more nuanced story.
A breakdown of the weekly performance shows that only around 0.1-0.3 percentage point of the weakness in those Yen crosses reflects additional Yen appreciation beyond what is already happening against the Dollar. USD/JPY itself is barely moving, indicating that the real picture is one of Dollar and Yen strength, while Euro, Aussie, Sterling, and Kiwi are losing ground against both.
The reason for this disparity lies in the intervention risk that is preventing USD/JPY from participating fully in the Dollar's wider advance. Intervention risk is acting as a ceiling over USD/JPY, forcing weakness to pass directly into Yen crosses.