Japanese Yen Collapse, Beware of Intervention, EUR/GBP Maintains Range Trade

Japanese Yen, EUR/GBP Analysis and News:

Japanese Yen Collapse as BoJ Sticks to YCC Commitment

Arguably one of the most exciting Bank of Japan monetary policy meetings in recent times given the significant Yen depreciation. However, despite the move in the Japanese Yen this did not deter the BoJ away from sticking to its commitment to yield curve control with the central bank pledging to purchase 10yr JGBs at 0.25% every business day in fixed-rate operations with no upper limit. Additionally, with the BoJ also maintaining its rate guidance this prompted the USD/JPY to soar to fresh two decade highs, testing 131.00,

Bank of Japan Comments

BOJ KEEPS GUIDANCE; RATES TO REMAIN AT PRESENT OR LOWER LEVELS

BOJ: WILL OFFER TO BUY 10-YEAR JGB AT 0.25% EVERY BUSINESS DAY VIA FIXED RATE OPERATIONS UNLESS IT IS HIGHLY LIKELY THAT NO BIDS WILL BE SUBMITTED

For a turnaround, you will need Japanese Officials to show signs of discomfort, which at the time of writing the MOF has stated that recent FX moves warrant extreme concern, adding that they will take appropriate action if needed and will communicate with the BoJ.

That said, it is important to note that next week is Japanese Golden Week, meaning volumes will be lighter and thus increasing the possibility of an outsized move. What’s more, it is worth watching the direction of US yields given how closely the two have traded.

Source: Refinitiv

EUR/GBP Maintaining the Range

As pointed out earlier in the week, both the Euro and Pound have little going for it and thus EUR/GBP remains rangebound. The 200DMA once again caps the brief uptick in the cross, which now trades back below the 0.8400 handle. At the same time, with the US Dollar breaking above its pandemic peak at 103 and on course to test the 2017 high at 103.82, the would likely weigh on the Euro more so than the Pound given the larger weighting. Not to mention the modest reprieve across the equity space providing slight support for the higher beta Pound, therefore further cementing the range trade in the cross. Near term support at 0.8370-75 and 0.8350.

EUR/GBP Chart: Daily Time Frame

Source: Refinitiv