Experts agree: Last week’s intervention might have altered Yen outlook
- USD/JPY bounces to the mid-157.00s from Monday's lows at the 155.20 area.
- FX analysts from some of the world's leading commercial banks see risks skewed to the downside for the US Dollar.
- The experts see doubts about the Fed's commitment to fight inflation and threats of further interventions keeping a lid on USD/JPY rallies.
The Japanese Yen (JPY) trims some gains against the US Dollar (USD) on Tuesday, with the USD/JPY pair picking up to the mid-157.00s from Monday’s lows at 155.23. Analysts from some of the world’s leading commercial banks, however, affirm that last week’s coordinated US-Japan intervention might have altered the pair’s near-term bias.
FX analysts at Rabobank observe that JPY net shorts had climbed to their highest levels since 2024 ahead of the intervention, and expect positioning "to be sharply changed" in the next data release.
Support from the US provides more authority to Tokyo interventions
MUFG/BTMU flags an important liquidity backstop, noting that comments by the Japanese Finance Minister, Satsuki Katayama, “revealed that Japan also plans to utilize the Federal Reserve’s Foreign and International Monetary Authorities (FIMA) Repo Facility in the future.” The facility “enables Japan to access up to USD60 billion per day without selling Treasuries for up to seven days”.
In MUFG/BTMU’s view, with support from the US, intervention, Tokyo's actions to shore up the Yen "will be viewed as more credible and if it proves more effective it could then mean that less intervention is ultimately required requiring less Treasury sales.”
Overall, MUFG/BTMU’s analysts conclude that “the latest development give us more confidence in our forecasts that the yen is in the process of bottoming out. The threat of further joint intervention and a faster pace of BoJ hikes should provide more support for the yen, and discourage speculators from running elevated short yen positions.”
Fed's inflation-fight credibility likely to hurt the USD
In the same line, experts at BBH note that “markets questioned the Fed’s inflation-fighting credibility, while suspected joint Japan and US intervention to strengthen JPY added to the dollar’s decline.”
BBH estimates that “the US Treasury has apparently stepped in alongside Japan to buy $5-10bn worth of Japanese yen on Friday,” and stresses that “history is clear, joint FX intervention packs a punch, and investors should lean with the official flow, not against it.”
Strategists at UOB Group retain a cautious stance on USD/JPY over the one-to-three-week horizon, reiterating that “the risk for USD remains firmly on the downside, and the levels to watch are 155.00 and 154.10.” They acknowledge that “downward momentum has slowed with the subsequent rebound,” but stress they will “continue to hold the same view as long as the ‘strong resistance’ at 160.00 (no change in level) is not breached.”
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
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