USD/JPY: It’s only a matter of time before the ¥150 level is tested
2022-10-19
■ Despite the emergence of the idea that "monetary intervention was implemented on October 13," the U.S. yen then rose further to the level of 149 yen.
■ The view that USD/JPY is more dependent on U.S. interest rate trends in the near term continues to strengthen and there is a high probability of testing the ¥150 level.
The USD/JPY exchange rate is rising in recent days due to the warnings of foreign exchange intervention by the Japanese authorities (Ministry of Finance and Bank of Japan) and the speculation about rising US interest rates. This report discusses the correlation between the possibility of monetary intervention on October 13 and two-year U.S. government bond yields, which are highly correlated with the dollar/yen exchange rate.
In retrospect, October 13 was the day when the USD/JPY broke through its highest point (147.63 yen) since August 1998. The U.S. Consumer Price Index (CPI) for September, released on the same day attracted by the market and USD/JPY rose to 147.67 after the index was released. It then plunged to 146.48 yen, but immediately recovered and rose further to the level of 149 yen by the end of the week of October 18.
Since transactions in the foreign exchange market are settled after two business days in principle, the transactions on October 13 will be settled on October 17. The Bank of Japan's Oct. 17 report on the current account balance showed that it was about 1 trillion yen lower than the amount estimated in advance by several short-term investment firms due to "fiscal and other factors. Combining the above price movements, the Japanese authorities put forward the idea of intervention on October 13. At the time of writing, the Treasury did not indicate whether interventions were made and it would be necessary to look at the amount of foreign exchange interventions published at the end of October for further details. However, if the Japanese authorities had intervened covertly, it can be inferred from the subsequent price movements that the effect of currency intervention in curbing the appreciation of the dollar and the yen would have been significantly reduced.
USD/JPY rose to 149 level comes against the backdrop of U.S. President Joe Biden's statement on Oct. 15 that he would accept a stronger dollar. In addition, U.S. employment data and the U.S. price index were strong in September, and the U.S. terminal rate (the final point for a rate hike) rose from the high 4% range (as of the end of September) to around 5% next year. The appreciation of USD/JPY since the beginning of October is mainly due to the strengthening of the US dollar. So, looking at the level of the USD/JPY exchange rate in terms of the correlation of the 2-year US Treasury yield, according to my calculations, if the yield rises to the level of 4.6%, the USD/JPY exchange rate will reach 150 yen. . It is estimated that if the yield rises to a level of 5%, it will reach the middle range of 153 yen.
The dollar's movement is expected to be influenced by fluctuations in U.S. interest rates, and the dollar's impact on the yen will continue for some time. In addition, market participants believe that if additional intervention continues to be implemented, it will be the best buying point for the dollar-yen and the effect of exchange rate intervention is expected to diminish further. U.S. interest rates are likely to rise further and it may only be a matter of time before the USDJPY attempts to raise rates to 150.