Credit Agricole provides insights on the USD/JPY and EUR/JPY valuations, particularly in light of the recent movements in the yen and the potential for interventions by Japanese authorities.

Key Points:

• JPY Intervention Watch: With USD/JPY nearing the 145 mark, Credit Agricole notes that during previous occasions near this level, verbal interventions escalated, reaching level 4 out of a possible 7 on their verbal intervention scale. Level 7 indicates warnings of an imminent intervention.

• Policy Officials' Warnings: Japanese policy officials have previously warned against erratic volatility in the forex market, asserting that such currency fluctuations did not truly represent economic fundamentals.

• USD/JPY Fair Value:

  • Credit Agricole’s primary model for determining USD/JPY’s fair value is currently unstable.
  • However, their secondary model, which takes into account short- and long-end UST yield movements, estimates that recent yield changes have increased the short-term fair value for USD/JPY from 140.50 to 142.80.
  • It's worth noting that these calculations are preliminary, as the model is typically updated with data at the New York close.
  • According to these calculations, USD/JPY would only be considered significantly overvalued if it exceeded 146.15.

• EUR/JPY Valuation:

  • EUR/JPY appears to be significantly overvalued based on preliminary estimates.
  • The bank's primary model, which is stable for EUR/JPY, suggests that the short-term fair value has marginally increased from 154.17 to 154.46.
  • The pair would be deemed significantly overvalued if it surged beyond 157.40.

Conclusion:

Credit Agricole is closely monitoring the yen's performance against both the USD and EUR. They emphasize that while the USD/JPY pair is approaching levels where previous verbal interventions have occurred, it isn't considered excessively overvalued yet. On the other hand, the EUR/JPY seems to be trading at a significant premium to its estimated fair value, which could warrant closer attention.