Over the past month, the and have been the weakest of the major currencies, off 5.00%-5.40%. The yen is at 24-year lows, while sterling swooned nearly eight cents in less than four weeks toward the March 2020 extreme (~$1.14).
The yen’s weakness is more clearly a function of the divergence of policy. The correlation with US Treasuries has been too strong and too stable to dismiss easily. Back in July, when the had approached JPY140, Japanese officials expressed various degrees of consternation. Talk of material intervention always seemed wide of the mark to us. Officials seemed to be more concerned about the pace of the move rather than the direction or level. Volatility has not returned to the highs seen earlier despite the recent slide in the yen, and Japanese officials have been notably quiet.
Sterling’s haemorrhage is partly a function of the US dollar’s strength. However, there is also something more idiosyncratic….
