Japan Officials Not Alarmed
Japan’s Finance Minister Aso said that the yen is still in the process of correcting. To us, this signals the government is not troubled by the latest wave of yen selling which took USDJPY to a new multiyear high of 99.67 overnight. It is also the clearest sign yet that Japan would be willing to see the yen fall to below 100 against the dollar. We did get a reminder though of how sensitive the market could be to an eventual shift in rhetoric. Aso was first misquoted, before the newswire in question issued a correction. The initial headline made it seem as though he was calling a top on USDJPY at current levels, which invited some selling. We stress that there is no indication Japanese officials are likely to declare that enough is enough any time soon, but we remain alert to the possibility. Whether rhetoric alone would be enough to suspend the USDJPY rally for more than a few days is an open question though. Given the BoJ has created the conditions for further yen weakness – through their actions and not their words − a shift in government rhetoric in isolation may not be enough to hold back the tide.
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UBS