Yen forecast: Intervention rumors move USDJPY from 150

“USD is bid with DXY tapping on 107 now and the yen briefly breaching 150 before a seismic adjustment on surely some kind of BoJ intervention – from 150 to 147.3, last trading a little below the 149 level.

Tora tora tora: spot where the BoJ likely dived in.”

“There is much speculation over whether Japanese authorities intervened yesterday afternoon to sell USD/JPY. The flash crash from 150.15 to 147.30 had all the hallmarks of intervention, although Tokyo has failed to publicly confirm that it either 'checked rates' (a precursor to intervention) or indeed sold dollars. During last year's FX intervention campaign where the BoJ sold $70bn through September and October, Tokyo was happy to confirm intervention and did so in a reasonably noisy way. Tokyo's silence now may indeed suggest they didn't intervene and the sharp sell-off could have possibly been caused by re-positioning after option barriers in USD/JPY were hit at 150.

As above, there are no signs that US Treasury yields are near a peak meaning that even if intervention took place, USD/JPY could still go higher. For example, last year's intervention started at 146 in September and did not stop USD/JPY trading to 152 in October. However, we would say that the difficult external environment and the unwind of the carry trade will give the yen some support on the crosses. And investors will also be reluctant to chase USD/JPY up through 150 near term.”

“Japanese officials unanimously refused to confirm any FX intervention. Instead, they continued to emphasize their readiness to react to ‘excessive movements’.

In any case, Tuesday's exchange rate movement will reinforce the impression among market participants that the 150 in USD/JPY is a sound barrier that is difficult to break through.

Ultimately, however, interventions do little to change the fundamental situation. As long as the US economy continues to appear robust and the BoJ does not seek an exit from its ultra-expansive monetary policy, there are fundamental reasons for an upward trending USD/JPY. FX interventions will do little to change this. If the MOF nevertheless continues to intervene, an attrition battle could loom, with the currency market repeatedly testing the 150 mark and the MOF reacting accordingly. The next few days are likely to remain exciting.”

“The conundrum the BoJ finds itself in is that intervention right now is a battle it can’t win.

In any case, Tuesday's exchange rate movement will reinforce the impression among market participants that the 150 in USD/JPY is a sound barrier that is difficult to break through.

USD/JPY is unlikely to retreat in a durable fashion until the bank tightens policy or the cap comes off 10y JGB yields. Or US bond yields stabilise or (ideally) retreat. In short, it could get worse for the Yen before it gets better.

USD/JPY retreated from 151.95 to 135 a year ago after $43bn of USD sales, but the success was partly explained by the 50 bps drop in 2y UST yields and unexpected change in YCC settings in December. The BoJ may have checked FX rates on Tuesday with dealers, but we would not be surprised if actual selling of USD is delayed until Friday, or Monday morning during Asian trading hours, when US payrolls will have been published.”

“The government’s verbal intervention threats have curbed the fall of the JPY but are not sufficient to turn JPY fortunes. Even with a high likelihood of intervention, we see further Yen weakening in the short term.

We still expect that a reversal is in the cards longer term – that is more likely to occur when major central banks turn dovish rather than the BoJ turning hawkish.

USD/JPY – 3M 150 Mid-2024 145 End-2024 140 Mid-2025 130.”