Commerzbank’s Michael Pfister argues that Japanese authorities cannot rely on FX interventions alone to support the Japanese Yen (JPY) against the US Dollar (USD). He notes that past intervention episodes delivered mixed results and July 2024’s relative success coincided with a Bank of Japan (BoJ) rate hike. Pfister expects two further BoJ hikes and forecasts USD/JPY to decline over 2026, but warns that failure to tighten would keep the Yen under pressure.

BoJ hikes seen key to yen support

"In recent months, there has been a sense that levels above 160 in USD/JPY mark the critical threshold for actual interventions, although, of course, warnings of intervention by the MoF grow increasingly vocal even before USD/JPY reaches that level."

"The major success in July 2024 was due to a different factor."

"At the end of July, the Bank of Japan implemented its second interest rate hike, providing additional support for the interventions through monetary policy."

"In short, interventions alone won't save the yen."

"For the interventions to be successful, the BoJ would therefore need to hike interest rates further."

"Our expectation of two further interest rate hikes is also the reason why we continue to expect USD-JPY levels to fall over the course of the year, even after our latest forecast revision."

"However, if the BoJ fails to deliver these, the outlook for the yen is likely to remain challenging."

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