MUFG has opened a new long AUD/JPY position at 111.20, targeting 114.50 with a stop at 109.20. The bank argues joint US-Japan yen intervention will matter less for the currency's direction than fundamentals, a view it says Friday's weak July payrolls report reinforces.
MUFG has opened a new long AUD/JPY position at 111.20, targeting 114.50 with a stop loss at 109.20. The bank's house view is that joint intervention by the United States and Japan will ultimately matter less for the yen than fundamentals do.
Past intervention episodes reversed
The bank points to three prior joint or coordinated intervention episodes, in 1995, 1998 and 2011, and notes that in each case USD/JPY breached its initial post-intervention levels again before a lasting change in direction actually took hold. In 1995, rate cuts in Japan and Germany combined with a pick-up in US growth pushed USD/JPY higher rather than lower.
In 1998, a rapid 75 basis point reduction in the Fed funds rate between September and November triggered what MUFG describes as an unprecedented plunge in USD/JPY. In 2011, record unilateral Japanese intervention that October, combined with the arrival of Shinzo Abe as prime minister in late 2012, eventually drove the pair higher rather than the intervention alone.
Payrolls miss adds to the case
The bank also flags that Friday's weaker than expected July payrolls report reinforces the case for softening US fundamentals, which it sees as a more credible driver of eventual USD/JPY downside than the intervention itself. However, MUFG expects any such move to unfold more gradually than the sharp 1998 reversal.
A trade built on fading intervention
For clients positioning around the intervention headlines, MUFG's core takeaway is one of caution against reading too much into the intervention itself. The bank's new long AUD/JPY position is presented as its preferred way to express a view on yen dynamics through the current window, with the 114.50 target and 109.20 stop defining the trade's risk parameters. The bank's historical read suggests markets should watch incoming US data flow, starting with the payrolls miss, more closely than the intervention headlines for signs of where the yen is actually headed next.
Source: Investinglive
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