USD/JPY: Upside capped by intervention risk – BBH

A test of resistance at 160.00 in USD/JPY has renewed concerns over intervention following Japan’s substantial summer FX operations, according to Brown Brothers Harriman’s Elias Haddad. Officials have warned that recent currency movements have been too rapid. Although continued US dollar strength is maintaining upward pressure on the pair, the prospect of further intervention is seen as restricting sustained moves above 160.00 and making additional JPY selling less attractive on a risk basis.

USD/JPY test of 160.00 brings renewed official scrutiny

"USD/JPY tested key resistance at 160.00, putting intervention risks back in the spotlight. Indeed, Japan’s top currency official, Atsushi Mimura, warned “the currency moves over the past few days have been too fast…It’s too early to forget what happened this summer.”"

"As a background, Japan spent a record ¥15.4 trillion ($97bn, or roughly 10% of its FX reserves) to prop up JPY on July 30-31 and August 3. The US also stepped in, with intervention estimated at $1bn. The FX reaction was swift."

"USD/JPY plunged from an intra-day high of 163.74 on July 30 to a low of 155.23 on August 3 and has largely failed to sustain a break above 160.00 since."

"Bottom line: USD strength keeps USD/JPY under upward pressure, but the threat of intervention tilts the risk-return against further JPY selling and should limit overshoots above 160.00."

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