Japanese Yen: Joint intervention reshapes FX dynamics – Commerzbank
Commerzbank analyst Michael Pfister examines recent joint US–Japan intervention to support the Japanese Yen. He notes confirmation that US authorities helped Japan and that further actions are possible, but constrained by IMF rules.
On Thursday, the US and Japan joined forces to support the Japanese Yen in a historic intervention, marking the first such joint effort in decades. Commerzbank analyst Michael Pfister confirmed that US authorities provided crucial assistance to Japan, though further actions are limited by International Monetary Fund (IMF) rules.
Pfister asserts that the Yen remains significantly undervalued, with the OECD's purchasing power parity indicating a more than 60% undervaluation against the US dollar, compared to a 29% undervaluation for the euro. The Bank of Japan's interventions, aimed at bolstering the currency, have been driven by concerns over US Treasuries potentially being sold off, potentially involving Japan's use of the Federal Reserve's repo facility.
Pfister warns that if Japan engages in additional interventions, the Ministry of Finance will exhaust its options by November, prompting market participants to remain vigilant for future interventions throughout the day. Meanwhile, global currency markets are experiencing shifts, with GBP/USD climbing to new three-month highs near 1.3560, EUR/USD breaking into the upper 1.1500s, and gold rebounding towards $4,400 as the US Dollar faces weakening pressures.
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