Synopsis:

Societe Generale discusses the recent suspected intervention by Japanese authorities in the USD/JPY exchange rate following the Federal Reserve's latest monetary policy decision, noting the limited impact of these actions on reversing the currency's gains.

Key Points:

• Timing and Context: The intervention reportedly occurred amidst key global events, including the Champions’ League semi-final, suggesting a strategic choice of timing to maximize impact.

• Immediate Market Impact: The intervention led to a 3% decrease in the USD/JPY rate, although half of this reduction was quickly recouped. The resilience of the USD/JPY rate post-intervention highlights the ongoing challenges faced by the Bank of Japan (BoJ) in managing the exchange rate amidst differing monetary policy trajectories between the U.S. and Japan.

• Volume of Intervention: While exact figures are awaited, early indications suggest that this week's total intervention may be the most substantial single-week effort by the BoJ to date.

• Yield Differentials and Market Dynamics: The continuing wide yield differentials between the U.S. and Japan are a major force driving the USD/JPY higher, complicating the BoJ's efforts. The yield gap underscores the fundamental economic differences currently influencing the currency pair.

Conclusion:

SocGen expresses skepticism about the immediate effectiveness of the BoJ's intervention strategy, given the significant yield differentials between the U.S. and Japan that continue to apply upward pressure on USD/JPY. The report suggests that without a fundamental shift in either monetary policy direction or economic performance, interventions might only provide temporary relief, with broader economic factors ultimately driving currency value. I