Even the richest governments in the world do not have the power to fight against the fundamentals of the currency market. Japan’s finance ministry may be under test again, but the strength of the US dollar after a strong payrolls report in September. The United States added 263,000 jobs, compared to the 250,000 expected, and the unemployment rate fell to 3.5 percent from 3.7 percent. The data confirms that we are at least a month ahead of the Fed’s pivot point. But what about the Bank of Japan? Last month, MOF opened and intervened in USD/JPY as the pair broke above 1 5.00 for the first time in decades, leading to a rapid decline to 1 0.25. Since then, the pair has returned and is still weighing against 1 5.00, although usually to the downside. It is trading at 1 5.13 after the data, from 1 .90 before. The size of this move is smaller than other USD moves (including the 70-core lower cable) and suggests that the market is bearish. But how long can you help strong bases back? The hammer would be the Bank of Japan raising yield curve guidance (or even interest rates). UBS released a note yesterday predicting a fall to 130.00.
