Morning Bid: Yen's to-do list gets harder from here

A look at the day ahead in European and global markets from Ankur Banerjee

Aided by the U.S., Tokyo's coordinated effort to pull the Japanese yen away from 40-year lows was probably what was needed to turn the tide for the frail yen, but will require monetary policy follow-through to make the move stick.

Japan and the United States conducted coordinated yen-buying intervention, Japan's finance ministry said on Monday, confirming a rare bilateral action, the first such move since 2011, and warned they will not hesitate to take further action.

A Reuters photograph on Friday highlighted the joint effort being undertaken as U.S. Treasury Secretary Scott Bessent exposed a "to-do" list during a cabinet meeting indicating he was contemplating U.S. purchases of $5 billion to $10 billion worth of Japanese yen.

Taken over Bessent's shoulder during an on-the-record portion of the meeting, the Camp David notepad bears the underscored words "To Do" followed by "Buy Japanese Yen (JPY) $5-10 bil."

The to-do list for Japan though is likely to be much longer. The oil-importing country will be hoping that a deal to end the war in the Middle East could be on the cards after U.S. President Donald Trump's statement that talks with Iran will take place later in the day.

Oil prices slid following Trump's comments but Asian stocks remained under pressure as investors remained sceptical of a deal being struck. [O/R]

Analysts also point out that Japan's monetary policy remains the crucial part of the broad picture as interest rate differentials need to narrow for the yen to strengthen.

That has put pressure on the Bank of Japan to hike and hike soon. The two-year JGB yield, which is most sensitive to near-term monetary policy moves, briefly hit 1.545%, the highest since 1995, as markets priced in the chance of an early rate hike.

For now, the yen remains on the charge as it suddenly spiked in early Asian hours in what analysts suggested could be another bout of intervention. That left the currency at 156.54 per U.S. dollar, well away from the 1986 lows of 163.99 it hit in July.

Key developments that could influence markets on Monday: Economy events: Germany retail sales for June and July PMI data for France, Germany, UK and the euro zone

(By Ankur Banerjee in Singapore; Editing by Jacqueline Wong)