ING note with a recap of yesterday's action out of Japan on the weak yen:
- The Bank of Japan’s “rate check” appears to have been effective in protecting a ceiling of USDJPY145. This should stabilize the currency, at least temporarily . The market is now slowly digesting the Fed’s next giant step at its September meeting. The rate-checking and intensified verbal intervention by the authorities will likely have a greater impact on market expectations about the possibility of intervention.
And, on what's ahead:
- But we still think that the probability of actual intervention is low because unless the BoJ's monetary policy changes, it is doubtful that intervention will work. We think the market will try to breach the ceiling of 145 again as yield differentials will likely widen further with more aggressive Fed hikes (the market is pricing in a terminal Fed funds rate of 4.25%).
----
If you missed the USD/JPY developments yesterday, in summary:
- Take note of the harsher words coming out of Japan on the yen weakness
- BOJ reportedly conducted rate check in apparent preparation for currency intervention
- Japan MOF offers no comment on intervention, reported BOJ rate check
