Yesterday, we wrote about the risk of Bank of Japan intervention and even though the BoJ did not intervene, the rally in USD/JPY today is certainly reminiscent of intervention.
At 8:30am Eastern Time this morning, USD/JPY rallied 90 points in a matter of minutes which is the type of move that we typically see when the BoJ intervenes. Of course, this rally was directly related to the Federal Reserve’s $200 billion liquidity boost and not any announcements from the Bank of Japan. However if risk aversion continues to subside and USD/JPY extends its rally, the Bank of Japan will not need to intervene any time soon. Furthermore, MoF member Shinohara said last night that the current circumstances are different from when they intervened in 2003 and 2004, which is why the USD/JPY move may not be worth looking at. We remain suspicious of a broad recovery in carry trades because stock markets around world remain extremely volatile. Japan has a lot of numbers due for release this evening including CGPI, the current account balance, consumer confidence and final Q4 GDP.