(Bloomberg) -- The battered yen has been hovering near a critical turning point and a 34-year low but Japanese authorities are likely wait until a US inflation reading later this week before stepping in to prop up the yen, according to Standard Chartered.
The currency trades a whisker away from this year's low of 151.97 and 152 per dollar — a key psychological level that many expect to trigger Japanese authorities to act. But strategists at the British bank expect policymakers to leave their red line more ambiguous as they wait for Wednesday's March inflation data. A too hot reading could spur dollar buying they warned.
“On a stronger-than-expected US CPI number, we think the BoJ could back off until buying has been exhausted,” FX strategists Steve Englander and Nicholas Chia wrote in a research report Monday, adding that a surge in yen selling could mean authorities won't step in until around the 153 level.
Should policymakers decide to prop up the yen they will likely need to deploy more than the $60 billion they spent on intervention in September and October of 2022, according to the strategists. “Like eating snack foods, a bit of intervention is rarely enough,” they wrote.
While Japanese Prime Minister Fumio Kishida is scheduled to visit the US this week and Washington could release a statement in support of any policy actions, Standard Charter puts the probability of a joint intervention at only 20%.
“FX intervention will be a unilateral effort by Japan, perhaps with an implicit go-ahead from the US,” Englander and Chia wrote. Alternatively, a soft US CPI reading could offer policymakers some relief.
The combined short yen bets from leveraged funds and asset managers has reached a 17-year high. That stretched positioning leaves the currency bears vulnerable to “modest shocks in the opposite direction,” the strategists said.
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