Macquarie: The “signal effect” of the US may use 500 million US dollars to interfere with the yen in the joint intervention is far greater than the scale of funding

The Zhitong Finance App learned that Gareth Berry, head of foreign exchange and interest rate strategy at Macquarie, said that the signal effect of the joint intervention of the US and Japan in the yen exchange rate is “far more influential than the scale of the capital flow itself.” Berry wrote in a recent report: “We estimate that the US authorities sold €500 million worth of EUR/JPY on July 31.” He pointed out, “In terms of scale, this is only a drop in the ocean compared to Japan's estimated sell-off of about 85 billion US dollars/yen in two days from July 30 to 31.”

Given that the US invested relatively little in last month's intervention, this means “it still has enough ammunition.”

The report further stated: “If the US Treasury and the Federal Reserve join forces, they can use additional Euro-denominated reserves worth 25.9 billion US dollars, so if the yen weakens again, they are fully capable of carrying out more operations on a similar scale in the EUR/JPY market.”

In theory, if the US were to directly interfere with USD/JPY, the ammunition it could use would be nearly limitless.

This operation marks the largest two-day intervention on record, in addition to Japan's intervention after the Fukushima disaster in October 2011.

Currently, the exchange rate of the yen against the US dollar is about 159.70, once again approaching the 160 mark that traders are closely watching. Previously, the market feared that hitting this mark might trigger intervention by the Japanese government to support the yen. The yen recovered most of its gains after the joint intervention of the US and Japan last month, and interest spreads between the US and Japan and concerns about Japan's fiscal outlook continue to put pressure on the yen.

Overnight index swaps show that the probability that the Bank of Japan will raise interest rates in September is about 80%. At the same time, the market's attention is also turning to another more aggressive possibility: whether the Bank of Japan will accelerate the pace of monetary tightening given the continued weakness of the yen and high bond yields.

Changes in speculative positions also confirm the expected shift. According to data from the US Commodity Futures Trading Commission (CFTC), the total number of short Japanese yen contracts held by leveraged funds decreased by 6.5% to 59,526 in the week ending August 11. Overall, hedge funds have cut short yen positions by more than half since the two countries' authorities collaborated to support the yen around the end of July.