Bank quotes test - 3

Yen steadies as intervention talk meets calls for faster BoJ tightening

According to Scotiabank, the yen is showing its “first attempt at material strength” since last week’s “alleged” official intervention, with the currency “strong, up 0.4% vs. the USD and outperforming all of the G10 currencies into Friday’s NA session.” The bank also highlights a “meaningful moderation in bullish momentum” for USD/JPY, noting that the “RSI [is] fading back toward 50,” suggesting some loss of upside impetus in the pair.

ING’s strategists, however, stress that the broader trend remains intact, observing that “USD/JPY is grinding higher again – as is USD/Asia in general – on the back of higher energy prices.” They point out that “local authorities continue to try and defend against currency weakness – weakness which would add to the inflation problem,” with “USD/JPY… back above 162 again and [looking] biased to retest recent highs near 162.70/85.” ING cautions that “intervention alone cannot reverse the current bull trend,” arguing that “for that to happen, energy prices need to come lower and the Fed must conclude that it does not need to hike rates after all,” conditions they judge “unlikely in the near term.”

From a policy perspective, MUFG/BTMU argues that to “help stabilise the yen and JGB yields, the BoJ needs to pick-up the pace of tightening.” They add that “allowing the BoJ to act more freely would prompt yen recovery, especially if the Fed’s next move is a cut (our view)” and that a “turnaround in the yen would be key element of improving confidence in price stability and the prospect of domestic investors investing more in JGBs.”