USD/JPY: Intervention supports gradual downside view – MUFG

MUFG’s Michael Wan highlights that Japanese authorities likely intervened in FX markets as USD/JPY dropped from near 160 to below 157, with estimated operations of JPY5-6 trillion. He notes these efforts mirror past interventions in 2022 and 2024. MUFG’s base case is for two Bank of Japan (BoJ) rate hikes and a gradual USD/JPY move toward 152.

Authorities lean on intervention and BoJ hikes

"In particular, USD/JPY fell sharply from a peak of closer to 160 to slightly below 157 at the time of writing, with likely FX intervention on Thursday evening Asia time to help to push down USD/JPY."

"Estimates by market participants based on current account deposit data released by the Bank of Japan and relative to changes in money market positions showed that intervention could have been around JPY5-6 trillion, or around US$32-38bn."

"If these preliminary estimates are correct, the magnitude would be quite similar to FX intervention during April 2024 and Oct 2022."

"Whether these efforts result in a sustainable return in USD/JPY lower would ultimately have to depend also on the fundamentals, and in particular whether the Fed turns more dovish and importantly whether the Bank of Japan deliver on rate hikes moving forward."

"Our base case remains for two BoJ rate hikes in June and December this year, and this will be a crucial assumption together with de-escalation in the Strait of Hormuz in forecasting a gradual move lower in USD/JPY towards the 152 levels."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)