Intervention Efforts Failing to Turn Tide for Yen - 3-Minutes MLIV
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Summary
The segment examines the failure of yen intervention, sticky oil prices due to Iran tensions, limited upside for bonds, and the potential for a hot NFP to push US yields toward 5.3%.
- US-Japan coordinated yen intervention disappointed, unable to break USD/JPY below 155 despite record short yen positioning.
- Oil prices are expected to remain sticky because of high geopolitical risk around Iran and the Strait of Hormuz.
- Elevated energy prices cap bond price gains, hitting US Treasuries and European government bonds.
- Strong nonfarm payrolls could drive 10-year US yields up to 5.3%, making it a key event to watch.
Ideas
Intervention fails, yen weakens further.
Coordinated US-Japan intervention failed to break USD/JPY below 155. Yen short positioning at highest since July 2024, dollar longs at record highs. Without the BOJ stepping in with rate hikes, intervention is a waste of money, and Japan needs lower oil prices, which is out of officials' control. Thus the yen is likely to remain weak.
Geopolitical risks keep oil prices sticky.
Geopolitical tensions with Iran, low traffic through Strait of Hormuz, no progress on nuclear deal, and lack of reciprocal signals from Iran mean energy prices will remain sticky. This keeps upward pressure on oil.
Sticky oil caps bond upside.
Sticky energy prices limit the upside for bonds, especially in the US where there is a real rate story, and also in Europe. This means bond prices will struggle to rally, and yields will remain elevated.
