Let’s start with the assumption that the MoF/BoJ have reached their point of pain. I am not saying this is the case but it pays to be on intervention alert. After looking at this chart from Friday you can see why I say it pays to be on alert.
Timing for a forex intervention alert?
Should the BoJ decide to take a stand and intervene, it would look to get the most bang for its buck. In other words, pick a time where it would use the least resources and produce the greatest impact from intervention.
If I was in the BoJ’s shoes I would wait until just after the Tokyo opening on Monday, let the market push USDJPY up and come in with both barrels blazing. I would then smash USDJPY below 155, sit at that level with an offer to make it a resistance and let the market do the rest.
This above is based on an assumption that Japanese authorities will react to what they see as a disorderly market and the pace of the JPY decline. As I said, this may not be the case but it pays to be on guard.
But would intervention be like pissing in the wind?
Given rising US bond yields, the BoJ standing pat on interest rates, and any intervention would be unilateral (i.e. only the BoJ), the answer is probably yes. In addition, there are likely buyers lying in wait hoping for intervention to provide better buy levels.
However, with that said, it still pays to be on intervention alert for without it, USDJPY would be on a clear path for the next moving line in the sand at 160.
So, the bottom line is that Japanese authorities are stuck between a rock and a hard place. Take a stand and intervene to buy some time or see its currency continue to fall into the abyss
Trading tip: Set up your trade according to your analysis BUT NEVER COUNT ON A CENTRAL BANK TO BE THERE TO PROTECT OR BAIL YOU OUT OF YOUR POSITION
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