USD/JPY: Choppy but elevated path into 2H26 – HSBC

HSBC notes how Prime Minister Sanae Takaichi’s supermajority reshapes Japan’s policy backdrop and implications for the Japanese Yen and USD/JPY. They highlight intervention risks around 158–162, stress that FX operations only buy time against fiscal concerns, and argue that a durable JPY recovery needs proactive BoJ tightening and fiscal discipline, with USD/JPY staying elevated in 1H26 before moderating later.

Supermajority, intervention risk and BoJ path

“With USD-JPY trading near the intervention zone of 158-162 during April-July 2024, the immediate focus for the FX market is whether Japan’s Ministry of Finance (MoF) will engage in verbal intervention as assertively as it did in January, and whether the prospect of coordinated intervention with US authorities will be highlighted once again.”

“While FX intervention does not resolve underlying concerns about Japan’s fiscal sustainability, it could prompt some market participants to temporarily close short JPY positions to mitigate volatility.”

“Such intervention can also provide time for the government to implement measures, such as tax adjustments to Nippon individual savings accounts (favouring domestic assets), regulatory measures or incentives for pension funds and insurers to increase FX hedging or shift towards domestic assets, and potential rate hikes by the Bank of Japan (BoJ), and more disciplined fiscal policy.”

“A sustained recovery in the JPY is likely to require a more proactive BoJ, clear evidence of fiscal discipline, and supportive capital flow measures.”

“Overall, we expect USD-JPY to remain choppy but elevated over the near term, before moderating in a more sustained way in 2H26.”

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