Japanese Yen: Intervention fears cap losses against US Dollar – Rabobank

Rabobank's Senior FX Strategist Jane Foley discusses recent joint intervention by Japan’s Ministry of Finance (MoF) and the United States (US) Treasury to support the Japanese Yen (JPY) and its implications for USD/JPY. Foley highlights use of the Federal Reserve’s (Fed) Foreign and International Monetary Authorities (FIMA) Repo Facility, questions over Bank of Japan (BoJ) rate hikes, and suggests the 200-day sma near USD/JPY158 may act as resistance, limiting further US Dollar (USD) gains.

Joint support and policy uncertainty

"The joint intervention between the MoF and the US Treasury that has played out in recent days is more like the action last seen during the Clinton Administration in 1998 when both authorities set out to support the JPY. One interesting question regarding the Treasury’s decision to act in recent days is ‘what is in it’ for the US? Another key question is whether the JPY can sustain its better tone."

"The use of the FIMA by the MoF in its support of the JPY backed up by action from the Fed may have been a useful short-term solution for both the Japanese and US authorities. That said, FX intervention will only be successful in turning a currency pair if the fundamentals are also pushing in the same direction. Whether this is the case has yet to be established."

"He stated that underlying inflation was at risk of rising above the BoJ’s 2% target and suggested that there was the possibility of speeding up the pace of hikes. That said, perhaps understandably, there was no clear commitment to do so, and this will have disappointed JPY bulls. Meanwhile, the market remains wary about the weight of government debt."

"While we are optimistic regarding the changes to Japan’s economy in recent years, the market will likely have to become more confident that the BoJ can hasten the pace of rate hikes and see more reassurances on fiscal prudence for the JPY to recover significant ground. While more economic data and news of Takaichi’s fiscal credibility is awaited, for now fear of further intervention and a weaker USD will likely be sufficient to prevent USD/JPY from pushing much higher. The 200-day sma close to USD/JPY158 is likely to act as resistance."

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