Japan Intervenes In FX Market To Crush Yen Shorts After Dovish CPI

The yen - that favorite asset of momo chasers and Mrs Watanabes everywhere - exploded more than 2% against the dollar in the wake of the much weaker than expected CPI print, a move which was quickened by what Asahi TV reports was the latest round of BOJ intervention.

Japan’s currency abruptly soared to 157.44 per dollar from just shy of 162.00 in the minutes following news that core CPI rose the least in almost three years. The move followed the yen hitting its weakest level since 1986 just last week, fueling a new wave of jawboning from Japanese authorities about their willingness to act to bolster the currency if necessary.

And after the USDJPY plunged more than 3 yen in short order, with traders divided whether the speedy rally was a result of options trades being closed out, or a sign that Japan was in the market, Japan's Asahi TV gave the answer:

• JAPAN INTERVENED IN FOREX MARKET, TV ASAHI REPORTS CITING GOVERNMENT SOURCE OR SOURCES

In other words, what happened was the following: USDJPY tumbled as much as 2%, its biggest drop since the last BOJ intervention back on May 1:

This was followed by a flurry of comments from the recently fired Japanese top FX diplomat (who still has an office apparently) Kanda, and who did not confirm the intervention...

• *KANDA: WE GENERALLY DON'T COMMENT ON WHETHER INTERVENED IN FX
• *KANDA: IF WE DID INTERVENE TODAY WE'LL DISCLOSE AT MONTH-END

... he did confirm that the BOJ has finally realized that the imploding yen has sparked an inflationary firestorm, one which is having a "big impact on people's livelihoods":

• *KANDA: FLUCTUATIONS ARE LARGE, DIFFER FROM FUNDAMENTALS
• *KANDA: BIG FX MOVES HAVE BIG IMPACT ON PEOPLE'S LIVELIHOODS

... which also means that Japan finally cares about the explosive inflation yen collapse has sparked, and as often happens, is about to blame the speculators who are - all of them - short the yen.

• *KANDA: IT'S SAID SPECULATION IS CONTROLLING THE MARKET
• *KANDA: RECENT MOVES ARE NOT REFLECTING FUNDAMENTALS

What is the take home message here?

• First, the intervention was coordinated: Japan's MOF was well aware that the US CPI print would be a big miss ahead of time, and minutes after the report it unleashed tens of billions worth in JPY buying, something it wouldn't have been able to do at 9pm in the evening Japan time without advance notice.
• Second, the campaign to crush "speculative" shorts - who are now officially blamed for Japan's galloping inflation - has begun, and both the BOJ and MOF have a green lights to intervene at any moment to further send the yen sharply higher.
• Third, with the BOJ expected to either taper its huge QE next month, or to hike rates, or both, one can be absolutely certain that Tokyo would not have spent another $20 billion or so in FX reserves only to see the USDJPY print new 40 year highs in a few days; it also means that as part of the coordinated intervention, the BOJ will surprise if not shock, hawkishly, and we fully expected that the next big move will push the USDJPY below 150.

2024 has been a catastrophic year for the yen which has imploded, making it not only the worst-performing Group-of-10 currency, but also underperforming banana republic currencies such as the real, peso and lira. Sentiment has been so poor that bearish wagers have dominated the market even after the Bank of Japan raised its short-term policy rate for the first time since 2007 in March. That said, if there is truly a shift in policy at the Fed and BOJ, sit back and watch as the biggest momentum reversal trade in decades kicks in and sends the JPY soaring, potentially making it the best performing currency this year, or at the latest, in 2025.