JPY Spikes Higher

The Japanese Yen is rallying today following news that the Japanese Government Pension Investment Fund (GPIF) is considering a significant strategy shift in favour of increasing allocations to domestic assets and reducing exposure to foreign assets.  With over $1.5 trillion in holdings, the GPIF is the largest pension fund in the world and such a move could be a major boost for JPY. With less exposure to foreign assets there would be a heavily reduced need to sell JPY in order to buy foreign FX, thereby driving up demand for JPY.

Intervention?

The timing of this strategy review looks to be no coincidence with JPY currently around 40-year lows against USD. Traders have been speculating over when Japanese authorities would take action to intervene and what that intervention might look like given previous failures to stop the decline of the Yen. Such a move from the GPIF could completely alter the dynamics of JPY trading and should, near-term, drive-up repatriation of JPY in anticipation of a surge in GPIF buying.

Hawkish Fin Min Comments

Alongside this news, we’ve also heard comments from Japanese Fin Min Katayama expressing her view that gradual interest rate rises are expected form the BOJ in order to support the governments fiscal policy strategy but noted that the BOJ can alter rates regardless of the government’s opinion. These comments were seen as a signal that BOJ could move faster on rates than some are expecting, helping further drive-up JPY support today.

Technical Views

USDJPY

For now, USDJPY is back below the 161.95 level with a possible double top forming. Strong bearish divergence in momentum studies readings also suggests room for a correction lower here. However, the broader bull outlook remains unless we break sub/160.49 near-term.