HSBC analysts argue that foreign exchange intervention alone is unlikely to keep the USD/JPY pair sustainably below 160. They stress that effectiveness increases when intervention coincides with Bank of Japan (BoJ) rate hikes and lower Oil prices. They also warn that emerging fiscal concerns and rising long-dated JGB yields could limit any sustained Japanese Yen (JPY) appreciation in the near term.

Policy follow-through key for Japanese Yen

"The key lesson from 2024 is that intervention without policy follow‑through tends to lose impact quickly."

"In practical terms, intervention alone is unlikely to keep USD/JPY below 160 for a prolonged period of time."

"It is more effective when supported by broader conditions − such as a Bank of Japan (BoJ) rate hike and lower oil prices − which together could help USD/JPY grind lower over time."

"However, fiscal concerns may re-emerge and complicate the near-term outlook. These risks could surface in late May, linked to supplementary budget discussions, and/or in June, when Japan releases its annual medium‑term economic and fiscal policy guidelines, expected to be Prime Minister Takaichi’s first."

"Such developments could push long‑dated Japanese government bond (JGB) yields higher, reinforcing the view that underlying domestic pressures remain persistent."

"Overall, even with intervention, USD/JPY may struggle to establish a clear downward trend over the near term unless supportive policy and external conditions align."

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