00:00Mark, we have spent a lot of time talking about the BOJ this morning.
00:03We watched it weaken and weaken and weaken, slides to 1.59, Ueda talking and talking.
00:09And then all of a sudden, the yen strengthens against the dollar, 1.5751 it got to.
00:15Where, what are you thinking is happening?
00:18What's behind these sudden moves?
00:21Yeah, absolutely.
00:22I think an important disclaimer before I start here is that when I walked into the studio a couple of minutes ago,
00:27it was trading around 1.5920, so I have no particular information on this move.
00:31But what does it look like?
00:32And bear in mind, I've traded dollar-yen at banks.
00:35I've worked at banks, including Nomura.
00:37So I have some familiarity with how intervention works.
00:41Most likely, I've got to reiterate, I've not seen what's happened here.
00:44Most likely, this is a rate check, which is normally the initial move that the MOF does,
00:49which is kind of going like, hey, where do you see dollar-yen right now?
00:52And it's kind of a warning that, you know, if you give us a wrong rate,
00:55we're going to suddenly give you a load of dollar-yen.
00:57So it's kind of the first flag that will intervene.
00:59That's likely the move.
01:00How will we know the difference?
01:02Well, if it's intervention, they won't stop just now.
01:06They will drive it quite a few yen lower.
01:08I would say probably maybe five yen lower.
01:11And given that leverage longs are short yen,
01:13they could really start a bit of a stop-loss move.
01:15So if this is intervention, then the initial dip in dollar-yen won't be all we'll see.
01:21We'll see follow-through later on today.
01:22So probably the first check of whether this is just a rate check,
01:25whether there's a bank pretending it's a rate check or intervention,
01:27trying to get some stops going, or whether it's actually intervention.
01:30Now, the extra bit that's kind of interesting here is that
01:33it would be kind of weird time for intervention
01:35straight after the Bank of Japan press conference has just finished.
01:39So I'm a little bit suspicious that this might be just some other player on the market
01:43trying to, like, do a bit of a head fake here.
01:45On the flip side, the Bank of Japan, and I said this is driven by the MOF,
01:50makes the decisions here, like intervening when dollar is in a weakening trend,
01:55when they know they've got the market on the side.
01:57They don't like fighting against the trend
01:59because they know it's just a waste of capital.
02:00So with the news flow this week, people want to diversify away from the dollar.
02:04We're seeing the dollar weaken across the board, except against the yen.
02:06This is a perfect environment for the MOF to kind of go,
02:09look, we want to intervene.
02:11Let's see what the action is after this.
02:12I repeat that I've done this hit not having seen this move
02:16when I walked into the studio.
02:19Mark, would intervention work?
02:21Is this something that is going to have an effect beyond the short term
02:25if it is intervention?
02:28So it's a great question.
02:32I look fundamentally, as you know, I tend to be a perma bearer on the yen.
02:35I think it's got a, it's a structural decline to go for a long time to come.
02:39That said, I think it'll work.
02:40So I don't think it's going to work on a super long term basis.
02:43But in terms of a trading basis, yeah, I think this could turn the trend around
02:46for potentially months.
02:47So importantly, we're in a backdrop here of the dollar starting to weaken
02:52and people really want to get on that trade.
02:54This will kind of add to that momentum.
02:55We've just had dollar yuan fixed below seven.
02:58Kind of everything's lining up for dollar weakness.
03:00Now, if the BOJ are on board as well, it'll be kind of great for that trade.
03:03So people will push this trade.
03:05The macro community loves buying yen because they all trade off rears,
03:07real effective exchange rates.
03:08I think that's a rubbish way to trade FX, I should say.
03:11But because it's used predominantly in the community,
03:14people always think yen is undervalued, want to buy it.
03:17With the positioning there in the market,
03:19I think this could really start a stop loss run if the MOF get really involved.
03:22So dollar yen could go quite a bit lower.
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