JPY: Caution around 100.00 level likely - MUFG

Derek Halpenny, European Head of GMR at MUFG, suggests that also favouring limited fallout for the dollar after the FOMC is the likelihood that market participants will be somewhat cautious of pushing USD/JPY lower from here given the approach of the 100-level.

Key Quotes

“Current levels proved very supportive post-Brexit, and then again in July and August and our sense is that strong domestic buying will help provide support over the near-term.

The Japanese authorities will no doubt do all it can to indicate opposition to further strong gains for the yen. Today, an email from the FSA informed the market of a meeting that took place between the FSA, the MOF and the BOJ. Attending this meeting was MOF Vice Finance Minister for International Affairs, Masatsugu Asakawa, who administers FX policies. After the meeting he repeated the MOF mantra that action would be taken as needed “if speculative moves continue” and that speculative excessive FX moves were “not desirable”.

He also added that it would take time for the markets to digest the BoJ announcement yesterday. This was almost certainly a topic of conversation at this meeting and the BoJ may well be hoping that the markets interpretation of the announcements change over time. What the Japanese authorities may well be anticipating is that the yield control policy proves more credible amongst market participants that could ultimately mean a slower pace of asset purchases over time that allows for the BoJ’s policy to be perceived as more sustainable, thus strengthening forward guidance. Weakening forward guidance due to uncertainties over the sustainability of JGB purchases has certainly been a factor behind yen appreciation this year.”