USDJPY Won't Sustain Any Bid It Gains From MOF Abstinence

By Michael Wilson, Bloomberg markets live reporter and strategist

USD/JPY won’t be able to sustain any bid it may gain from this week’s Ministry of Finance intervention data.

The data, due between now and month-end, is likely to again confirm that Japanese authorities did not step in to currency markets in November. When that happened at the end of October, USD/JPY saw a quick 100-pip rally to a fresh one-year high of 151.72, as it was interpreted by investors as tacit approval of yen weakness.

The knee-jerk reaction may be similar this time, but the background context is extremely different. For a start, the report in October came on the same day as a BOJ meeting which disappointed those speculating on a more hawkish policy shift. Second, the US 10-year Treasury yield was ~50 basis points higher and the spread to JGBs was almost 400 bps then, instead of ~365 today.

Ultimately, USD/JPY is always and everywhere a derivative of US yields, and so its level by Friday’s close will depend much more on the US data set and Powell comments, rather than any local excitement on MOF data.