USD/JPY made an all-time low last Friday, just touching below 76 for the first time before bouncing back higher. This has prompted the rhetoric to pick up, as the BOJ further threatens intervention. However, it is likely that the BOJ won’t do anything until after Bernanke’s speech on Friday as the world waits to see if QE3 is launched by the Fed.
If so, then the rush of Dollar-selling could be too much for the BOJ to attempt to thwart, though it is unclear exactly what will happen. A counter-intuitive argument could be made that things look so bad that the necessity for QE3 actually induces the flight to safety trade and rush to the Dollar. This scenario is improbable however, and USD/JPY could further weaken adding pressure on the BOJ to act.
The best case scenario for Japan would be for the Fed to ditch the calls for QE3, which could cause the Dollar to strengthen, though other world markets could sell-off which could strengthen the Yen as well.
It’s not a pretty picture for the BOJ!
