eptpokervideos| Reduce bond purchases and raise interest rates... The Japanese authorities released a "save the yen" signal! But the market doesn't buy it: it will fall back to 160

The volatility of the yen seems to be continuing. Analysis of data shows that the Bank of Japan is suspected of intervening in the foreign exchange market twice.EptpokervideosThe yen gained support last week: it rose violently after falling below the important 160 mark last Monday and maintained its rally in the following week. But the yen gave up its gains this week as the focus returned to the spread between the Federal Reserve and the Bank of Japan, despite frequent "intervention" signals from Japanese authorities this week, but the market seems unconvinced: Wall Street analysts and hedge funds are still betting that the dollar will return to the 160 mark against the yen. In addition, analysts believe that as the Bank of Japan will reduce bond purchases and raise interest rates to "save the yen", the benchmark Japanese 10-year bond interest rate will return to 1% from 2013.

Violent rally after a sharp fall in the yen last week: analysis shows that the Bank of Japan intervened in the foreign exchange market

The yen has fluctuated sharply since April 26, when the Bank of Japan announced a "dove" interest rate resolution that did not address the high-profile issue of foreign exchange intervention; then the yen began to tumble. After spending the weekend, the yen fell below 160 for the first time since 1990 on Monday, April 29, but then soared nearly 400 points in just 30 minutes in midday. The yen fluctuated almost as much as it did when Japan intervened in 2022.

This sparked speculation among market traders about whether the Bank of Japan intervened in the foreign exchange market. Although Japanese officials declined to comment, the Japanese authorities intervened in the foreign exchange market, reversing the sudden collapse of the yen, according to media reports on Monday. And institutional analysis of the BoJ's accounts suggests that the central bank may have intervened in the yen twice last week.

Last Tuesday, the Bank of Japan reported that its current account could fall by 7% due to fiscal factors such as government bond issuance and taxes.Eptpokervideos.56 trillion yen ($48.2 billion). This is much larger than the drop of about 2.1 trillion yen estimated by brokers, indicating that the scale of the intervention is about 5.5 trillion yen.

Totan Research Co. It is estimated that the current account balance of the Bank of Japan will decrease by 2.1 trillion yen due to fiscal factors such as government bond issuance and taxes. Central Tanshi Co. It is estimated that it will decrease by 2.05 trillion yuan. Shunsuke Kobayashi, chief economist at Mizuho Securities, said: "A simple calculation shows that the scale of this intervention is roughly the same as that of the largest operation in 2022."

On Thursday, Japan may have intervened in its second currency, according to an analysis of BoJ accounts, another sign of strengthening its fight to support the yen. The Bank of Japan reported on Thursday that its current account could fall by 4.36 trillion yen ($28.1 billion) in the next working day on Tuesday for fiscal reasons, much more than the average fall of 833 billion yen predicted by money brokers. this means that there is about 3.5 trillion yen in intervention.

Analysts show that the Japanese monetary authorities made an unusual move to intervene in the market shortly after the Fed meeting, when traders were still digesting the Fed's statement. The dubious move will show that Japan's Ministry of Finance is taking an increasingly aggressive stance, which could become a protracted war to support the yen.

The yen gave up its gains this week: the focus turned to spreads, betting that the yen would fall back to 160

As traders turned their attention to the interest rate outlook in Japan, the yen continued its decline, ending last week's sharp rebound. On Friday, the USDJPY fell back below 152level to close slightly higher, but this week the yen gave up last week's gains, and as of press time, USDJPY rebounded to 155.72, up 0.16 per cent on the day.

Alvin Tan, head of Asian foreign exchange strategy at Royal Bank of Canada Capital Markets, said on Monday that the USDJPY was likely to rise because of the "huge" spread between US and Japanese interest rates, and that the impact of the intervention would soon dissipate if US interest rates did not continue to fall from their current levels. The yen's decline deepened after US Treasury Secretary Yellen reiterated that the US wanted the Japanese authorities to "rarely intervene and negotiate", and some traders in the market expected the yen to fall back to 160.

Big Wall Street analysts: the Japanese yen may fall back to 160 as interest rate spreads between the United States and Japan narrow

Marito Ueda, head of liquidity market research at SBI, said: "the yen has strengthened steadily after the intervention in 2022, but this time it may be more difficult. At that time, there was speculation that the US interest rate hike was coming to an end, and the outlook for monetary policy was not as uncertain as it is now. " He added that the yen could fall below 160 yen against the dollar again.

Alvin Tan, head of Asian foreign exchange strategy at RBC Capital Markets in Singapore, also believes that the yen could fall to 160 because of the interest rate gap, and that if US interest rates do not fall, "the impact of intervention will dissipate soon". Tan also pointed out that the USDJPY will retest the level of 160.

Similarly, as BofA expects the Fed to cut interest rates in December, it expects the yen to hit 160 again this year. "given that there may be no sign of a rate cut before September, the downward pressure on the yen will continue for more than a quarter," said Shusuke Yamada, head of Japanese currency and interest rate strategy at Bank of America Securities Japan.

Hedge funds are on the offensive against the yen again, betting that the yen will fall to 160

Hedge funds have poured in and are re-attacking the yen. Days after the Japanese authorities appeared to intervene and prop up the yen's rebound from a 34-year low, leveraged funds are betting that the dollar will return to 160 against the yen in the coming weeks, according to options traders. Short-term funds began buying one-to three-month dollar-yen RKO contracts this week, which would appreciate if the dollar rose against the yen.

Unlike ordinary call options, these contracts contain an additional condition that the transaction will lose value once the exchange rate reaches the knock-out level. These knocks were mainly between 160.50 and 161, up from a high of 160.17 on April 29th, according to traders. Now, as the cost of defending against a rising dollar rises, demand for RKOs has narrowed the gap between put and call pricing to November levels.

Ruchir Sharma, global head of foreign exchange options trading at Nomura International in London, said: "the preference for RKO clearly shows that the market is cautious about intervention and therefore believes that the strengthening of the dollar against the yen is at best a run-in. In the face of this slow rise in the exchange rate, the Japanese authorities may still be less keen to intervene. The market is betting that the dollar is currently in a range against the yen, which will be capped at 160 set by the Japanese authorities. The bullish RKO against the dollar against the yen best reflects this, and the market has begun to participate in these trades purposefully. "

The Bank of Japan sent the message of "saving the yen" this week: it is suspected that it will reduce bond purchases and raise interest rates again.

Makoto Kanda, finance minister, said the authorities were ready to take appropriate action if necessary after Kazuo Ueda, governor of the Bank of Japan, stepped up his rhetoric on the weakness of the yen. But that is not enough to support the yen, which has fallen more than 1.6 per cent so far this week. The Bank of Japan is under more pressure to tighten monetary policy to prevent further depreciation of the yen.

The governor of the Bank of Japan meets with the Japanese prime minister and then sends a signal to support the local currency.

In order to support the exchange rate of its own currency, the Japanese authorities continued to send out tough signals this week after suspected intervention in the foreign exchange market last week. First, Bank of Japan Governor Kazuo Ueda is holding talks with Prime Minister Fumio Kishida this week to discuss currency trends. The meeting between Japan's prime minister and central bank governor has fuelled speculation that they are reaching a solution to policy changes, so bond yields look set to break through key levels.

It is worth noting that the last meeting between Mr Kishida and Mr Ida was at the end of March, with an interval of just over a month. This unusually short interval has increased bets that the Bank of Japan will raise interest rates as soon as possible and reduce government bond purchases to curb the continued weakness of the yen. After a recent meeting, Mr. Ueda also seems to have adjusted the tone of his remarks on the exchange rate issue.

Moreover, a day after meeting with Prime Minister Fumio Kishida, Ueda sent out a hint of raising interest rates. Kazuo Inada stepped up his language about the weak yen and issued a clear warning to financial markets about potential policy moves. In response to a question from parliament on Wednesday, Kazuo Ueda said: "the foreign exchange rate has a significant impact on the economy and inflation, and according to these developments, [the central bank] may need to take monetary policy measures."

Kazuo Ueda also said he needed to pay attention to the fact that a weak yen would be more likely to affect inflation as Japanese companies increasingly tend to pass on rising costs to consumers through higher prices. Kazuo Ueda, governor of the Bank of Japan, changed his attitude on the impact of a weak yen this week, strongly pointing out that a weak yen could cause the Bank of Japan to raise interest rates. This is in stark contrast to his speech at a post-meeting press conference last month, when he showed no sense of urgency.

Minutes of the Bank of Japan meeting: depreciation of the yen may lead to faster tightening of monetary policy

Second, the minutes of the Bank of Japan's April policy meeting show that board members are carefully studying the impact of a weak yen on inflation and see the possibility of accelerating interest rate hikes. On Thursday, the yield on 10-year Japanese government bonds climbed 4 basis points to 0.915%.

A summary of the Bank of Japan's April policy meeting shows that members are closely watching the impact of a weak yen on inflation and believe that interest rates may rise more quickly as a result. According to the minutes of the April 25-26 meeting released on Thursday, one member said: "if potential inflation continues to deviate from the benchmark scenario against the backdrop of a weaker yen, the pace of normalisation of monetary policy is likely to accelerate." Another member was of the view that due to the depreciation of the yen and high oil prices, "it is necessary to pay attention to the risk of price deviations from the benchmark scenario".

A member of the committee said in a summary of the meeting that if the BoJ's price outlook were realized, interest rates could be raised earlier than currently expected by financial markets. The BoJ last month predicted that a key indicator of potential inflation would rise 2.1 per cent in the fiscal year that begins in April 2026.

Another key issue at the April meeting was the bond-buying path, as the Bank of Japan holds about half of Japan's outstanding government bonds. Ahead of the meeting, there was speculation that the Bank of Japan would announce a cut in its bond-buying program to ease downward pressure on the yen. Some members stressed the importance of the Bank of Japan reducing its bond purchases at some point.

"it is important that the Bank of Japan reduce its purchases of JGBs in a timely manner," said one member. " Another member said, "one option is to reduce the amount of JGBs purchased by the Bank of Japan each month-currently about Y6,000bn ($38.6 billion)-based on the balance between supply and demand of JGBs."

Will the Bank of Japan cut back on bond purchases and raise interest rates? The market is betting that the yield on 10Y Japanese bonds will hit 1%

Analysts expect BoJ policy makers to take some action as early as the next meeting in June, and traders expect benchmark Japanese 10-year government bond yields to break through 1%. Although that is still lower than the 10-year bond yields of almost all other major economies. Japan's interest rates have not hit 1% since may 2013, when former bank of japan governor Toshihiko Kuroda began aggressive monetary easing to overcome deflation.

Tatsuki Nagano, president of All Nippon Asset Management, the asset management company, pointed out that "Japanese long-term bond yields could exceed 1 per cent as early as this summer", depending on the trend of 10-year US Treasury yields. He expects the Bank of Japan to reduce government bond purchases in June and raise interest rates in July.

The BoJ's historic move to withdraw from negative interest rates and asset purchases could also mean a significant change in the behaviour of domestic investors, who may find rising yields attractive. If Japanese investors start to withdraw from overseas bond markets, this could have serious consequences for overseas bond markets such as US Treasuries, European bills and Australian bonds.

Kazuo Ueda hinted in a speech on May 8 that cutting bond purchases was part of the BoJ's agenda. He said that while the BoJ's current operation was roughly the same as the number of bonds it decided to buy in March, "with the BoJ withdrawing from massive monetary easing, it is appropriate to reduce the number of purchases of JGBs".

Naka Matsuzawa, chief strategist at Nomura Securities, said banks will start investing in JGBs when the yield on the 10-year bond rises to 1%, while life insurers will actually start investing in JGBs when the yield on the 30-year bond exceeds 2%. Japanese banks and insurers have been building portfolios focused on foreign bonds since Japan began aggressive monetary easing in 2013, but Matsuzawa said he believes "money will return to domestic bonds."

Kazuo Ueda pointed out: "the sudden unilateral weakness of the yen increases uncertainty and is bad for the Japanese economy." If foreign exchange trends affect the country's price trends, it is natural for the central bank to consider taking action, he said.

Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management, said it was likely that the Bank of Japan would cut its purchases of Japanese government bonds at its June meeting, although that was not his main scenario. "If you cut back on purchases and raise interest rates, and the U.S. interest rate cuts are still far away, then Japan's 10-year bond yield will reach 1%," he said.