Yen watchers point to the 152 mark as the next key level for USD/JPY.
If the yen falls below this level, options positions could accelerate the yen's decline. But on the other hand, strategists said such a move could also trigger Japanese authorities to intervene to support the yen.
It is estimated that hedge funds are currently sitting on billions of dollars in yen-related derivatives, which are still profitable and will continue to rise in value as the U.S.-Japan exchange rate approaches 152. Once this level is exceeded, these derivatives will clear, by which time the sell-off in the yen could accelerate as such traders race to cover U.S. and Japanese short positions tied to the original options.
Ruchir Sharma, global head of foreign exchange options trading at Nomura International in London, said, "Fund managers choose this level as a key point for their alternative trading because they believe it will be difficult for the market to break through this level. The market will be very worried about a breakthrough in the U.S.-Japan exchange rate. This obstacle."
Sharma estimates that billions of dollars of U.S.-Japan alternative options will expire in April, with exercise prices around 152-153. Currently, the USD/JPY exchange rate has fallen back from the lowest level of 151.97 hit since 1990 and is now hovering around 151.5.
The importance of this level of the U.S.-Japan exchange rate to policymakers has been reflected in the Japanese government's warning that it will take bold action to combat speculative trading. Japan's top monetary official, Masato Kanda, pledged on Wednesday to take appropriate action to deal with excessive market volatility and said after a three-way meeting between the Ministry of Finance, the central bank and financial regulators that speculative behavior in the market would not be tolerated.
On Thursday, the U.S.-Japanese exchange rate began to stabilize, with authorities keeping a low profile. But in early trading on Friday, Japanese Finance Minister Shunichi Suzuki continued to say that excessive foreign exchange fluctuations are undesirable and did not rule out the possibility of taking any measures against excessive foreign exchange fluctuations.
Paresh Upadhyaya, head of fixed income and foreign exchange strategy at Amundi in the United States, said, "The market's view is that they have drawn a line at the 152 mark, and the key issue is the commitment of officials."
Traders are also on edge given Japan's fiscal year is coming to an end while many global markets are closed for Easter, raising concerns about rapid reallocation of assets and limited liquidity.
Additionally, inflation data, the Fed's favorite, is due soon, which could fuel the view that U.S. interest rates are unlikely to fall anytime soon and weigh on the yen.
Meanwhile, minutes of the Bank of Japan's March meeting released on Thursday showed that Bank of Japan Governor Kazuo Ueda and other board members favored a slow approach to raising interest rates, which may also put pressure on the yen.
Japan's Ministry of Internal Affairs and Communications said on Friday that prices in Tokyo, excluding fresh food, rose 2.4% year-on-year, a slight slowdown from 2.5% in February. The data was in line with economists' estimates and could further support the Bank of Japan's case for caution in setting its policy course.
Article forwarded from: Golden Ten Data
