JPY intervention starts

- "Last week was historic for USD/JPY. On 14 September, the DPJ leadership election saw the previous DPJ Secretary General Ichiro Ozawa lose his challenge of Prime Minster Kan. Ozawa was regarded as a stronger advocate of yen-selling intervention than Kan and market participants lowered their expectations of intervention once Kan won. With US rates falling, USD/JPY fell below 83 in the New York session that day, declining to 82.88 in the Tokyo session on 15 September, finally prompting the first Japanese government intervention since March 2004. The move immediately sent USD/JPY to 85. Since 16 September, there has seemingly been no further intervention. USD/JPY at one point declined to 85.23 on 16 September as Japanese exporters sold USD, but otherwise it maintained an 85 high as market participants remain alert to intervention and US markets stayed relatively calm."
- "Should USD/JPY move to a low 85 we would expect a second round of intervention. If the MOF fails to indicate 85 as a defensive line, USD selling against JPY might accelerate, particularly as government officials have already specified 82 as a line worth defending. We believe USD/JPY has the scope to weaken to 86-87, but as exporters are likely to sell USD forward at these levels, we expect limited upside for USD/JPY. Judging by fragile US fundamentals, we lowered our USD/JPY forecasts on 6 September and now expect USD/JPY to trade at 82.5 at end-2010 and at 80 at end-March 2011, even after considering the effects of intervention. We recommend shorting USD/JPY if it rallies to 86-87."

Nomura JPY Weekly 20100921

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