Impact of JPY intervention on the rest of Asia

- "Confirmation that the Japanese authorities have intervened in USD/JPY (the first intervention since March 2004) marginally weakens the short USD/Asia story, in our view. Asian central banks may view Japan’s intervention as an additional reason to resist local FX appreciation, despite increased global political pressure to move (namely on China and to some extent Korea ahead of the G20 summit of 11-12 November). However, we do not believe the Asia ex-Japan authorities can argue on the same fundamental basis as Japan given the large recent divergences in broad economic performance, exports, equity markets and FX valuation. In this respect, we think that the impact of JPY intervention could be important, but not decisively for Asian FX. This may, for example, support reducing our short USD/CNY trade (as it reduces our conviction in that trade from 75% to say 65%). However, we do not think that it markedly alters the core story (see FX Insights: China Visit Notes, 1 September 2010).1 Likewise, it reduces our conviction on our short EUR/KRW trade to perhaps <60% from 65% previously (See FX Insights: Recommend adding a short EUR/KRW trade, 6 September 2010)."

Nomura FX Insights 20100915

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