MUFG’s Derek Halpenny argues that recent Japanese authorities’ action around the 160 level in USD/JPY likely reflects renewed intervention, with the move seen as buying time for the BoJ and government as they face Middle East uncertainty and domestic cost-of-living concerns. He warns that with yen shorts less extended and global yields rising, USD/JPY could rebound quickly if energy prices or geopolitical risks escalate.

BoJ action seen as time-buying move

“The five-big figure drop in USD/JPY is far too big a move on just rhetoric and the report from the Nikkei that intervention took place points strongly to intervention.”

“What this intervention does is provide some time for the BoJ to assess the uncertainties related to the conflict in the Middle East. There was an understandable reluctance to hike this week due to the lack of clarity and that reluctance coupled with the Fed being more hawkish opened up scope for a de-stabilising yen sell-off, possibly next week when Japan will be on vacation for Golden Week – Monday through Wednesday next week is a Japan holiday.”

“But with yen shorts not as extensive as in past intervention episodes there is a danger that this action does not have a lasting impact. An escalation in the conflict and/or a further rise in energy prices could see USD/JPY rebound quickly.”

“MoF yen-buying intervention in Oct 2022 and July 2024 were successful for a period as the action coincided with or was soon followed by a decline in US yields. At the time of the intervention in Apr/May 2024 US yields did not decline and intervention was required again by July.”

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