MUFG: Coordinated intervention may temporarily clear short positions, but a reversal in the USD/JPY trend still requires fundamental support

(1) Mitsubishi UFJ pointed out that historical experience shows that US-Japan joint intervention typically occurs near key turning points in the USD/JPY trend, but it does not always produce immediate results. The actual reversal of the trend often takes time. For example, after the joint intervention in June 1998, USD/JPY quickly plunged from 146 to 136 within a few days, but the long-term trend was not broken until two months later, when the underlying causes of the Asian financial crisis changed. After the intervention in February 1995, USD/JPY dropped from 100 to 80, then rebounded to 100, ending the downward trend. (2) Overall, this joint intervention is highly significant and is expected to effectively clear short yen positions in the short term. (3) However, for the USD/JPY to achieve a more sustained decline, fundamental changes are still needed—including Japan's real interest rates remaining relatively low and market concerns about the path of fiscal expenditure. The bank expects the Bank of Japan to raise rates faster than market pricing, which is also one of the important reasons it forecasts a gradual decline in USD/JPY.