JPY: uncertainties and fiscal stimulus, when a BOJ intervention?

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After the recent disappointment of the market following the BOJ meeting last week, the Yen during today’s opening session seems to extend the losses against the major G10 currencies, with USD/JPY which trading at +0,47% is making the second upper session in a row.

The actual level of 107,10 doesn’t seem to satisfy the market which at the moment make it difficult to identify a strong direction of the currency: if at 70 the Yen was too strong, at 120 his value is too low, and at the moment the price action seem to be in line with the fundamentals. An idea shared by the Japanese former Finance vice minister too who recently declared:

“Based on effective exchange rates, the yen cannot be said to be either strong or weak right now”

For several weeks investors discussed about a possible intervention by the BOJ (starting from the beginning of 2016 when the currency started to gain his momentum) and the main reason was the preservation of an acceptable price level for the Yen.

But what might be the ideal conditions of such an intervention?

A possible move from the BOJ could be implemented in 3 different cases:

  1. Under / Overvaluation of the Yen: in this scenario an hypothetical movement of the currency under the 105 level would make the BOJ intervention much more likely;
  2. Japanese exporters hedging: more the Yen moves away from the target rate (Tankan) more the currency demand will be high, with a consequent increasing of the possibility of a BOJ intervention;
  3. Nikkei level: an hard selling pressure on the Japanese equity, accompanied by strong rallies by the Yen would increase the possibility to see BOJ actions on the FX market. An alarming level for the Nikkei would be the February low.

 

Which of this 3 scenarios would be the first?

In the meantime the Japanese government efforts to stimulate the economy via fiscal interventions could be an initial step towards a possible FX intervention by the BOJ.

The american treasury meanwhile released his monetary policy report regard his foreign partners, in which Japan is included and which, with the other 4 partners, will be closely monitored.

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