Joint Intervention Supports Weaker Yen

The recent joint intervention by the US and Japan to buy yen has been supported by the weaker July payrolls report. MUFG Research notes that the US involvement is significant, but fundamentals still matter more. A look back at past joint intervention episodes shows that USD/JPY turns were more about fundamentals than the interventions themselves.

In 1995, rate cuts in Japan and Germany and a pick-up in US growth provided the catalyst for a higher USD/JPY. The Fed slashing rates by 75bps in Sept to Nov 1998 triggered an unprecedented plunge in USD/JPY. Record unilateral intervention by Japan in Oct 2011 and the arrival of Shinzo Abe as PM in late 2012 were the real factors behind turning USD/JPY higher.

The US last week was keen to cite this intervention with Japan as joint intervention, but there were notable differences. Market conditions on this occasion were not consistent with those previously that justified intervention. MUFG Research argues that USD fundamentals are indeed turning and hence USD/JPY can turn lower.