A quick drop in USD/JPY before bouncing back up
The desk interprets recent price action in USD/JPY as indicative of diminishing effectiveness of intervention measures by Japanese authorities. Per the full note source, the pair's drop from 157.70 to 156.75, followed by a rebound to around 157.30, suggests market resilience despite intervention signals. Current positioning reflects a cautious sentiment as traders weigh the potential for further intervention against a backdrop of low liquidity. This aligns with our broader view that USD/JPY may test higher levels in the near term.
What the desk is arguing
The desk posits that the recent fluctuations in USD/JPY are not solely attributable to intervention efforts by Japan's Ministry of Finance. Per the full note source, the quick drop and subsequent recovery highlight market dynamics that may be less influenced by government actions than previously thought.
Supporting this view, the pair's movement from 157.70 to 156.75 and back to 157.30 illustrates a market that is willing to absorb shocks without significant panic. This behavior suggests traders are increasingly skeptical about the efficacy of interventions, especially in a low liquidity environment.
Where it sits in our coverage
Our consensus target for USD/JPY is 1.075, with a range from 1.04 to 1.12. Notable targets from other firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This perspective aligns with jpmorgan, which sees potential for a stronger yen, while diverging from bofa, which maintains a more bearish outlook. The desk's call is positioned towards the upper end of the consensus range, indicating a more optimistic view on the yen's performance.
How other firms see it
Firms like jpmorgan and citi are aligned in their bullish outlook on USD/JPY, anticipating a stronger yen as intervention measures continue to be scrutinized. Conversely, bofa holds a contrary stance, expecting further weakness in the yen amid ongoing economic challenges.
Traders should also monitor related pairs such as EUR/JPY, which may reflect similar dynamics influenced by the Bank of Japan's policy decisions and market sentiment.
What the calendar says
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Key takeaways
- 01USD/JPY's recent volatility suggests diminishing effectiveness of Japanese intervention.
- 02The pair rebounded quickly after a brief drop, indicating market resilience.
- 03Current positioning reflects skepticism about intervention measures.
- 04The desk's target aligns with the upper range of consensus forecasts.
Market implications
Watch for USD/JPY to potentially test the 158.00 level if the current trend continues. Additionally, any statements from the Bank of Japan regarding intervention could serve as a catalyst for further movement in the pair.
Looking at the price action, I'm not very inclined to chalk this up to another intervention round. That being said, one can argue that with each intervention play that the effectiveness is slowly being diminished. After all, the signaling from Japan's ministry of finance last week wasn't the best considering the low liquidity environment.
In any case, the pair just dipped from 157.70 to around 156.75 but is now trading back up to near 157.30 - more than halving the quick drop. From earlier: Japanese yen starting to slip away again, will Tokyo officials step in? This article was written by Justin Low at investinglive.com.
Sources & References
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