So how much of yesterday’s yen move was really down to the threat of devaluation from Japan’s new finance minister and how much was just market positioning?
Sue Trinh, senior currency strategist at RBC Capital Markets poses the question with the below chart:
She notes that net (leveraged) positioning on the Tokyo Financial Exchange was massively short of USD/JPY. Thus she says “a lot of the move we have just seen in USD/JPY could be attributed to these margin traders liquidating.”
We won’t get the latest positioning data for another few days, which means we won’t be able to see to what extent the overhang of USD/JPY shorts has rebalanced this week post the minister’s comments, but in the meantime Trinh thinks yen devaluation just doesn’t make much sense for Japan:
Given the decline of Japan’s November export volume was the smallest on an annual basis for over a year and with the JPY 6-7% weaker on a TWI basis from late November, it is hard to believe that current levels of JPY would prompt intervention (chart 2).
Politically, it would seem Japan would also cop a lot of flak for intervention at a time when the G7 is trying to encourage China to let the CNY rise by maintaining flexible currency markets.
The latest on the subject, in any case, is that the finance minister has backed off his calls for a weaker yen, following what seems to have been a rebuke from Japan’s prime minister.
All of which means Dollar/Yen looks like this on Friday morning:
Related links:
Yen slides on finance minister’s U-turn - FT
Exporters hope for yen boost – FT
How do you say competitive devaluation in Japanese? – FT Alphaville
