How the speculative positions are handled will depend how much the market factors in a September rate hike after the Fed meeting, i don't see big dollar longs being added even if the Fed hints of a September hike, because current positions already look stretched. But we have to remember that going long on the dollar is the current trend. With euro/dollar plays possibly saturated, players are turning their attention to dollar/yen.

Koji Fukaya

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Washington seems to be trying to limit Chinese companies' activities by putting pressure on their funding.

The dollar has benefited this week from the trade conflict concerns that emerged earlier, which ended up funnelling safe-haven bids into the currency.

It remains to be seen if the yen can stay weak if global risk aversion takes hold again. Market players will be wary of the BOJ taking action in that case, but they may conclude that the central bank won't step in until dollar/yen falls into the 116 range, the BOJ can lower interest rates further into negative territory, but the impact could be limited. For example the ECB did deepen negative deposit rates in December but this was considered a disappointment.

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In terms of dollar/yen, it has been led back and forth by equities - particularly the impact of Chinese shares on Japanese stocks, the correlation might last a few weeks, depending on what Chinese authorities further do to shore up stocks, macroeconomic data, and performance by U.S. equities. We are not at a full blown financial crisis, so that is preventing many participants from going long outright on the yen.

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I would consider his comments today as his first attempt for verbal intervention against a weaker yen. The government has been making cautious comments about a weak yen since late May. But Kuroda's comments seems to be aimed at delivering their intention in a clearer way.

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The dollar is stabilizing around 120 yen for now but volatility is likely to remain high as the euro continues to cause turbulence, the dollar will remain strong against the yen in the medium term but a one-sided rally we saw last year is unlikely to be repeated this year.

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