US-Japan Currency Intervention Sparks Volatility
The US and Japan have coordinated an intervention in currency markets, leading to a significant move in dollar-yen. This unusual cooperation between the two countries has caused a 5-standard deviation shift in exchange rates.
Japanese authorities are not new to intervening in currency markets, but this time it's different due to coordination with the US Treasury Department and the use of volatility as a tool to deter speculative trading.
The yen is currently undervalued on a value basis, but investors are facing a challenge from expansionary fiscal policy and divergent monetary policies that would typically weaken the currency.
Investors in Japanese equities have been adjusting their positions by hedging or not hedging their investments to reflect their views on the yen's value. To ensure this view is deliberate, they may want to consider the performance of the FTSE Japan 100% Hedged index in USD compared to its unhedged counterpart.