OCBC’s Sim Moh Siong and Christopher Wong note that USD/JPY has broken back above 160, but intervention fears and official warnings are limiting upside relative to other G10 pairs. Japan’s large FX reserves underscore its capacity to act, yet they argue that a durable move lower in USD/JPY still requires a clearer hawkish pivot from the Bank of Japan (BoJ) to change the Japanese Yen’s funding status.

BoJ stance key for durable reversal

"USD/JPY dynamics are turning more interesting as intervention fears limit USD upside versus JPY relative to other G10 pairs. Japan’s Finance Minister Katayama has stepped up verbal warnings, noting discussions with US Treasury Secretary Bessent."

"Both sides agreed that decisive action can be taken in the FX market if necessary. MoF data show Japan retains a substantial USD1.3trn in FX reserves, underscoring its intervention capacity. The same data suggest US Treasuries sales likely helped fund the record USD73bn intervention during April to May."

"Earlier intervention effects have now fully unwound and more, with USD/JPY back above 160. This reinforces the view that intervention alone is insufficient to drive a sustained reversal lower."

"A durable shift in USD/JPY lower will require a clearer hawkish pivot from the Bank of Japan, transitioning the JPY from a funding currency toward a more attractive investment currency."

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