Yen Rallies Without Intervention, Raises Questions About True Level
The Japanese Yen staged an unexpected rally this week, defying a record $98 billion intervention by Tokyo in July and August. The USD/JPY currency pair declined from just under 159.00 to just under 155.50, a 3.7-Yen drop that passed through the 200-day Exponential Moving Average (EMA) near 158.00 without pause.
The move was attributed to a shift in monetary policy at both the Bank of Japan and the US Federal Reserve. On Wednesday, a hawkish Bank of Japan board member advocated for nimble hikes and left the door open for outsized or back-to-back moves, while Governor hinted that upside price risks deserved more weight.
The next day, a Fed governor indicated he would support holding rates at the September 15-16 meeting if inflation data behaved, causing September hike odds to fall to around 50% from above 60%. The policy rate in Tokyo is 1%, and the target range in Washington is 3.5% to 3.75%, so the arithmetic of the gap barely changed.
Tokyo's top currency official responded to the rally by describing it as neither satisfying nor reassuring, stating that the ministry remained on heightened alert. The level Tokyo actually wants is lower still, according to this view.