The drop in FX volatility after last week’s action is being helped by the PBoC's stabilisation of the Yuan and should not help the Yen, which remains the most popular funding currency for carry trades.
Verbal interventions in Japan and the softer Dollar momentum are helping a bit, but the current environment suggests a recovery in JPY remains even more strictly tied to US rates breaking lower.
My call remains bearish on USD/JPY moving forward, but in the very short term, the pair may retest the 152.00+ ‘verbal intervention’ area.
Guys, what do you think? Leave a comment with your thoughts.
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USD/JPY touched 152.00, continuing to test Japan’s FX intervention tolerance. This may still be only a ‘verbal intervention’ range, with another USD/JPY leg higher needed for actual FX intervention to be deployed (perhaps closer to 155.00). Remember that Japanese authorities look at the rate of change more than levels.