18/09/2022
Japanese yen: important weeks ahead.
In the last week, rumors about interventions by the Bank of Japan have intensified. The government also called on the financial authorities to intervene in the situation on the foreign exchange market.
We consider 3 scenarios most likely:
No. 1. Selling dollars from reserves, through RRP reduction, or selling short-term US bonds.
No. 2. Through an increase in interest rates and avoidance of negative rates while maintaining quantitative easing.
Number 3. Removing the cap on the maximum yield limit on 10-year Japanese bonds.
We consider the first option the most probable.
This point in time was chosen in a timely manner. The Fed is close to the neutral rate, tightening the monetary policy has a negative impact on the global economy and reduces consumption. All this lowers oil prices.
Thus, we believe that in the absence of risk factors*, we are close to opening long positions on the Japanese currency.
Deal of the year 2023 begins.
Risk factors:
No. 1. US rates will go above 4%.
No. 2. Oil or gas prices will continue to rise (geopolitical risk in the Middle East, possibly Iran).
Number 3. The Bank of Japan will ease the monetary policy.
