US, Japan both believe forex volatility is undesirable - Bessent
The desk interprets the recent commentary from Justin Low regarding US-Japan relations and forex volatility as a signal of potential stabilization in the USD/JPY pair. Per the full note source, both the US and Japan are expressing a shared concern over excessive currency fluctuations, which could lead to coordinated efforts to manage the yen's depreciation. This aligns with Japan's strong economic fundamentals, which are expected to support the yen in the medium term. However, the US's reluctance to engage in joint interventions complicates the outlook, especially as the dollar remains strong against the yen.
What the desk is arguing
The desk frames this as a cautious yet optimistic view on USD/JPY, emphasizing that both nations recognize the detrimental effects of forex volatility. The commentary suggests that Japan's robust economic fundamentals will eventually be reflected in a stronger yen, although this may take time.
Supporting this view, the Bank of Japan (BOJ) under Governor Ueda is seen as capable of guiding monetary policy effectively, which could stabilize the yen. However, the lack of commitment from the US for joint intervention indicates that any corrective measures may be limited.
The alternative read would be that without US support for intervention, the yen could continue to face downward pressure, especially if global market conditions remain unfavorable.
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 firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26) - citi: 1.12 (Mar26)
This view aligns with jpmorgan's target, which is at the upper end of the consensus range, suggesting a more bullish outlook on the yen compared to bofa's more pessimistic stance.
How other firms see it
Firms like citi and jpmorgan are aligned in their belief that the yen will strengthen as economic fundamentals improve, while bofa takes a contrary position, anticipating further weakness in the currency.
Watch USD/JPY closely for signs of intervention or shifts in monetary policy from the BOJ, as these will significantly impact the trajectory of the pair moving forward.
What the calendar says
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In very close contact with Japan's ministry of finance We both believe forex volatility is undesirable Japan economic fundamentals are very strong and resilient That will be reflected in the exchange rate Have great confidence in BOJ governor Ueda in guiding monetary policy Made no request to prime minister Takaichi regarding monetary policy Discussed Trump's visit to Beijing with Takaichi as well as importance of US-Japan relationship in that regard This doesn't really add much to his earlier comments here . His acknowledgement basically is a nod of approval to Japan's intervention actions in the past two weeks. However, he doesn't go as far as to commit to anything in saying that the US will be up for a joint intervention effort to help with the yen currency's plight.
As mentioned before, it is a sensitive topic and one that the US is not likely to get on board with: "Is it about time that Japan tries to seek help from the US for joint intervention? It's a very touchy subject but given the circumstances and desperation, this might be one alternative. However, this starts to border on politics and it would need the US to acknowledge that the yen is being "mistreated" while also arguing that the dollar is "too strong".
I just don't see that happening as it would require the US to take more of a dollar policy stance than being able to isolate it as a reaction to the yen and global market situation." This article was written by Justin Low at investinglive.com.
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