Synopsis:

ING discusses the complexities of potential Japanese intervention in the currency market as USD/JPY trades above the anticipated intervention threshold of 155. Despite high expectations following a recent trilateral meeting, current market conditions may not fully justify intervention based on historical precedents of volatility and rate changes.

Key Points:

• Current USD/JPY Levels: USD/JPY has surpassed the 155 level, a point many market analysts had anticipated might prompt intervention from Japanese authorities to support the yen. However, the actual market response and conditions have not yet aligned with typical precursors for such measures.

• Historical Context for Intervention: ING references September 2022, when the Bank of Japan intervened by selling $20 billion in one day, a response triggered by specific market conditions including one-month implied volatility trading between 12-15% and a 20-day rate of change in the 5-8% range.

• Comparison with Current Market Conditions: Currently, the one-month traded volatility for USD/JPY remains below 10%, and the 20-day rate of change is approximately 3%, both significantly lower than the levels seen during previous interventions. These more subdued metrics suggest less market disruption and may complicate the justification for immediate intervention.

• Implications of Trilateral Meeting: While last week's meeting between U.S., Japanese, and Korean finance ministers was significant, particularly for the intervention narrative, the joint press release alone does not meet all the criteria needed for action. The sufficiency of conditions for intervention requires clear evidence of disorderly market movements, which may not yet be present.

Conclusion:

While USD/JPY's breach of 155 has heightened speculation about potential intervention by Japanese authorities, ING notes that current market conditions characterized by lower volatility and modest rate changes do not strongly support the case for immediate action. It will be challenging for Japan to argue that the market conditions are sufficiently disorderly to warrant intervention based on historical intervention criteria.