USD/JPY tumbles again after early bounce, Japan MOF back in the market?

Now, this is more like it. In essence, the second round should be more effective given that speculators who have been burned will stay out of the way now. This is a quick 130-150 pips drop now in USD/JPY as the pair falls back to near yesterday’s lows. The low in the day before was 155.55 before a bounce back after. But given the fact that Tokyo feels the need to act a second time, it means that they will more than likely do what it takes to push price levels below that.The main question now is how long can Japan’s ministry of finance keep this up for? Sure, they have ample of reserves to burn. However, it would be wasteful to be expending that just so that they can try and prove a point to markets.As mentioned before, every fundamental factor right now is working against the yen currency. And policymakers certainly know that as well. These are desperate times. That especially considering that the US-Iran conflict continues to play out as the Strait of Hormuz remains closed.From yesterday:”The Takaichi trade is still running in the background and perhaps may even worsen if the government has to compile a supplementary budget to push out more energy subsidies. Adding to that is the BOJ facing up against cost-push inflation now in their efforts to raise interest rates. And that will come against a backdrop of a faltering economy, which is taking a massive hit from surging oil prices. As the Middle East conflict continues to drag on, the situation just becomes even more perilous for the Japanese economy.But unless the fundamental backdrop turns around, Tokyo officials also know very well that any intervention efforts may not be lasting. And that was the case with what we saw back in July 2024, before USD/JPY reversed back higher to cut out the intervention drop by January 2025. And this time around, that turnaround could be even quicker considering the market backdrop and economic landscape.”Update (0658 GMT): The move here is starting to look a bit like the one yesterday too. The pair is now bouncing back up to 156.00 after a quick and sharp 150 pips drop. It feels like Japan’s ministry of finance is just taking pot shots at the market and not really going big on their intervention scale. As mentioned, it would be wasteful to burn that much reserves at this point in time. So, I guess they’re just wanting to deliver some warning shots. But I fear that the more they do this, the more ineffective it will be if repeated too many times.
This article was written by Justin Low at investinglive.com.

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