The yen is falling endlessly, triggering a chain reaction! Gold broke below the 2,300 mark

Golden Ten New Media

2024-06-26 21:37

Japanese officials have just finished verbally warning that the yen has extended its decline after "dangling a shot", when will the authorities take action?

The yen fell as much as 0.4% to 160.4 against the dollar on Wednesday, its lowest level since 1986, breaking through levels seen in April when the Japanese authorities intervened in the foreign exchange market, sparking speculation that the authorities could soon be forced to support the yen again.

Before the U.S. market, the yen fell 40 points against the dollar in the short term after Japan's chief foreign exchange affairs officer, Mato Kanda, once again offered a warning from his head, but then rebounded quickly to a high of 160.48, a new high since 1986. Affected by the weakening yen, the dollar index hit 106 for the first time since May 1. The strength of the dollar dragged down precious metals, and spot gold fell below the $2,300 mark.

Kanda said he is seriously concerned about the recent sharp depreciation of the yen and will take appropriate measures to deal with foreign exchange issues as needed. He pointed out that the current fluctuations in the yen are undoubtedly unilateral.

The yen has depreciated by more than 12 percent so far this year, leading to higher import prices that hurt Japanese consumers and make businesses increasingly uneasy.

Despite Japan's higher borrowing costs, the large interest rate gap between the US and Japan is still weighing on the yen. The next big pain point for the JPY could come from Friday's reading of the Fed's favored inflation gauge, which is key to its monetary policy outlook.

Erik Nelson, a macro strategist at Wells Fargo in London, said: "The comments of the Japanese Ministry of Finance in recent days suggest that concerns have increased. He expects officials to hold out until the yen falls to 165 against the dollar before entering the market. Banks, including Bank of America, also believe that this level is the new "bottom line" for the authorities.

The stakes are high for Japan, which has spent a record 9.8 trillion yen ($61.1 billion) on recent rounds of intervention. Citigroup estimates that the country has between $200 billion and $300 billion to fund any operation.

But so far this week, Japanese officials have responded only to verbal warnings.

Earlier, Japanese Finance Minister Shunichi Suzuki said that they are closely monitoring market developments and will take all possible measures as needed. Kanda warned on Monday that the authorities were ready to intervene 24 hours a day if necessary, while reiterating that they were not intervening at a specific level.

Win Thin, head of global market strategy at Brown Brothers Harriman & Co in New York, said: "If the volatility of the yen against the dollar starts to become chaotic above the 160 level, the Japanese authorities may step in to smooth the pair's movements. Buying USDJPY ahead of a more hawkish BOJ stance has the least resistance. ”

Cameron Crise, a macro strategist at Bloomberg, said that according to my model, a level of around 161 or just above 161 remains the threshold at which the Japanese authorities are most likely to intervene.

Japan's previous moves to support its own currency have attracted attention overseas, with the U.S. Treasury Department last week placing Japan on a "currency manipulation watch list."

Although the U.S. does not designate Japan (or any other trading partner) as a currency manipulator, U.S. officials wrote that "in large, freely traded foreign exchange markets, intervention should occur only in very exceptional circumstances and after proper prior consultation." ”

However, the US data due on Friday may ease some of the pressure on the yen. Economists forecast a slowdown in core personal consumption expenditures (PCE) inflation in June, which could strengthen the case for the Fed to lower borrowing costs this year.

Many strategists say that volatility in the FX market is still relatively low and that authorities are currently struggling to intervene. For most of the month, USDJPY's one-month implied volatility hovered below 9%, down sharply from 12.4% at the end of April.

Roberto Cobo Garcia, head of FX strategy at G-10 at the Bank of Spain in Madrid, said: "Given the demand for the dollar at the end of the quarter and the fact that market volatility is still under control, the Japanese authorities may wait a little longer before intervening. If they are to intervene again, volatility needs to rise further. ”

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