#Bank of Japan News# #Japanese Market# FX168 Financial News Agency (Asia-Pacific) According to a report by Bloomberg on Thursday (July 25), more and more people expect that the spread between Japan and the United States will eventually shrink, and there are signs of turning points in the yen.
(Screenshot Source: Bloomberg)
The Japanese yen against the US dollar rose sharply nearly 1% on Thursday, continuing the trend of large rebounds from the lowest levels since the 1980s over the past two weeks.
Japan’s obvious intervention to support the yen, hedge funds drastically reduce their bearish bets on the yen, and arbitrage trading that has been suppressing the yen, have all pushed up the yen.
Now more and more people are trying to understand whether the rise of the yen will be a turning point, which may depend on the interest rate decisions of the Bank of Japan and the Federal Reserve next week.
A survey released by Bloomberg on Wednesday showed that although only about 30% of Bank of Japan watchers are expected to raise interest rates at the next meeting, more than 90% of respondents believe there is a risk of interest rate increase on July 31. At the same time, more and more people are calling on the Fed to start cutting interest rates on July 31.
Reuters quoted sources on Wednesday as saying that the Bank of Japan may discuss whether to raise interest rates at the meeting from July 30 to 31, and announce plans to halve the amount of bond purchases in the next few years.
Kit Juckes, chief forex strategist at Societe Generale Bank, said that in the face of some better opportunities to enter the market, this is certainly reducing short positions in the yen before the Bank of Japan may raise interest rates.
In Thursday's Asian market, the yen against the US dollar soared 0.9% to 152.49 yen against the US dollar, marking the fourth consecutive day of yen gains, outperforming all G10 currencies.
(Screenshot Source: Bloomberg)
Previously, the USD/JPY closed down 166 points, or 1.07%, to 153.82 on Wednesday.
Wei Liang Chang, macro strategist at DBS Bank Ltd., said that due to the risk aversion caused by the selling of technology stocks and the large number of speculative short positions, arbitrage trading closing boosted the yen. In contrast to the Fed and the European Central Bank, which are about to cut interest rates, Japan may tighten monetary policy next week, and the uneasy sentiment of yen short positions is deepening.
Chang pointed out that before the Bank of Japan meeting next week, there may be further strengthening of the yen.
The pricing of the swap on Thursday showed that the probability of the Bank of Japan raising interest rates by 15 basis points on July 31 was 58%, higher than about 0.29% last week. If Japan raises interest rates, the interest rate gap between Japan and the United States will remain at around 5%, but investors believe that the prospect of further interest rate cuts by the Fed will affect the narrowing of this gap soon.
Yusuke Miyairi, a forex strategist at Nomura Plc in London, said: "Two weeks ago, almost everyone was talking about yen arbitrage trading, but now it looks like people have completely forgotten this and are closing positions."
According to the latest data from the US Commodity Futures Trading Commission (CFTC), as of the week ending July 16, leveraged funds have significantly reduced their net short positions on the yen, reaching the highest level since March 2011. In addition, asset management companies have also significantly reduced their bearish bets on the yen, reaching the largest level in one year.
The highest economic committee of the Japanese government held a meeting last week, and Prime Minister Fumio Kishida, the main economic minister and Bank of Japan Governor Haruhiko Kuroda attended the meeting.
Minutes of the meeting released on Wednesday showed that some committee members believe that the Bank of Japan must raise interest rates to prevent the yen from excessive depreciation. Committee member Mana Nakazora, a strategist at BNP Paribas in Japan, said that if the spread between the US and Japan widens and the yen weakens and harms consumption, it is important for monetary policy to move more freely towards normalization.
Another committee member, Takeshi Niinami from brewer Suntory, also agrees with this view.
In addition, some politicians have called on the Bank of Japan to further clarify its interest rate increase plan to prevent the yen from falling to a new low.