USDJPY Crashes, Drags Equities With It As Gold Soars

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Ever since the USDJPY breached the 110 support level three days ago for the first time in 17 months, the pressure on this all important FX carry cross has been rising, and then overnight, following the latest bout of recurring and increasingly ignored jawboning by various Japanese officials, the Yen soared, with the USDJPY plunging first below 109 and then moments ago dropping as low as 108.02 before rebounding modestly, dragging US equity futures lower with it.

Today's latest drop has dragged the USDJPY to levels not seen since the October 2014 expansion of Japan's QE, when Kuroda unexpectedly announced a boost to the monthly amount to be monetized.

Overnight, Japanese finance ministry officials told reporters that there are one-sided moves in yen market, and will take necessary action if needed, a finance ministry official tells reporters. "We monitor the markets with sense of vigilance and will take necessary action as needed," Chief Cabinet Secretary Suga says in response to a question on FX.  The market however, completely ignored this attempt to normalize the "one sided" move, and sent the USDJPY crashing.

Some analyst thoughts:

• BOJ’s ability to influence market is waning and it’s hard for central bank to prevent yen strength by itself, says Shusuke Yamada, a currency strategist at Bank of America’s Merrill Lynch unit in Tokyo; intervention possible at 105, but more likely at 100; yen may reach 100 per dollar this year
• Even though BOJ’s rhetoric is intensifying, USD/JPY may fall further if there are no concrete actions from central bank and finance ministry, Credit Suisse macro strategist Trang Thuy Le says; market is disappointed that 110 didn’t hold
• FX intervention is unjustifiable above 105, says Yunosuke Ikeda, head of Japan foreign-exchange research at Nomura Securities; until around 105, FX intervention is difficult because of recent G-20 meeting in Shanghai; intervention requires U.S. support
• BOJ “shock and awe” stimulus is a risk at April meeting, but any USD/JPY boost may only provide speculators with a better level to sell dollars, says Peter Redward, principal at Redward Associates; BOJ may increase monetary base to JPY100t, accelerate ETF purchases and lower interest rates by 10 bps after Governor Kuroda said Japan is ready to ease without hesitation
• Negative rates reduce buffer for Japanese investors’ risk-taking and USD/JPY’s recent drop could keep Mitsubishi UFJ Kokusai Asset Management from “aggressively” making new investments, according to Hideo Shimomura, chief fund investor in Tokyo; says USD/JPY may reach about 105 this month or in May

As Bloomberg explains, expressions of concern from Japanese officials failed to convince markets that yen sales or other measures to curb the gains were imminent, and the currency rose at least 0.9 percent against all 16 of its major peers. It advanced even as a Ministry of Finance official said recent moves have been one-sided and that the authorities will take what action is necessary.

“The yen is being driven higher by risk aversion and by market participants testing the BOJ’s tolerance toward a stronger currency,” said Thu Lan Nguyen, a foreign-exchange strategist at Commerzbank AG in Frankfurt. “Japan doesn’t want to give the impression it’s planning to intervene given it’s hosting the next Group-of-Seven summit. There’s also a perception that it has very few measures left to aggressively ease monetary policy."

Japan’s government is watching yen movements with vigilance, Chief Cabinet Secretary Yoshihide Suga said for a third day Thursday. Excessive currency moves have a negative impact on the economy, he said.

“If Japanese officials start saying ‘will take bold action if necessary,’ then it is time to be wary of the risks of market intervention,” said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney. “In any case, history shows market intervention by the MOF via the Bank of Japan does not lead to a sustained weakening of the yen.”

For now, however, the market is roundly ignoring any words coming out of Japan, and demanding action instead.

The funny thing is that "currenct intervention" is precisely what was agreed upon at the Shanghai Accord, but for now the concern for China and its currency is far greater than that for Japan, or Europe, where the Euro is likewise soaring. As such, Draghi and Kuroda will have to last it out, unless they are willing to form a strategic splinter group of central banks in what is shaping up to be a massive round of currency warfare.

Elsewhere, the ECB did try to jawbone a little, and was "undermined after European Central Bank Vice President Vitor Constancio reiterated that policy makers will do "whatever is needed" to return inflation to target, sparking speculation that another interest-rate cut is in the cards,with the EURUSD declining from 1.450 to just under 1.40.

Equity futures did their best to ignore the move as long as possible but even they ultimately had to admit that something is cracking below the surface.

Meanwhile, the only currency that does not need central banks manipulation to preserve its value under any circumstances, gold, spiked moments ago, hitting a one week high of $1240.