Japan's intervention efforts have not been all too impactful this time around
At a Glance
The desk believes that Japan's recent currency interventions are proving ineffective against a backdrop of persistent bearish fundamentals for the yen. Per the full note source, the Ministry of Finance (MOF) has intervened multiple times, yet the USD/JPY pair continues to rebound, indicating that the market remains unconvinced by these efforts. Current positioning suggests that traders are increasingly willing to test the MOF's resolve, especially given the ongoing geopolitical tensions and rising energy prices. As we approach the end of the year, the consensus target for USD/JPY remains at 1.075, with significant divergence among firms regarding future expectations.
Full Analysis
What the desk is arguing
The desk posits that Japan's interventions are unlikely to yield lasting results in the current economic climate. The MOF's attempts to stabilize the yen, particularly after breaching the 160.00 level, have not produced the desired effects, as highlighted by the USD/JPY's quick return to near 157.00 following interventions. This situation underscores the challenges faced by the MOF against a backdrop of high energy prices and geopolitical instability.
Supporting this view, the MOF has reportedly spent close to $70 billion in interventions, yet the yen remains under pressure due to fundamental factors such as the ongoing US-Iran conflict and rising inflationary pressures in Japan. The desk emphasizes that the interventions have occurred during low liquidity periods, which diminishes their effectiveness and signals to the market that the MOF may be losing control.
The alternative read would be that if the geopolitical situation were to stabilize, there might be a temporary reprieve for the yen. However, the desk remains skeptical that such a scenario would be sufficient to reverse the current bearish trend for the currency.
Where it sits in our coverage
Our consensus target for USD/JPY is set at 1.075, with a range from 1.04 to 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26) - citi: 1.12 (Mar26)
This view aligns with jpmorgan, which sees a stronger yen in the medium term, while bofa holds a more bearish stance, suggesting significant divergence in expectations among firms. The desk's target sits comfortably at the upper end of the consensus range, indicating a more optimistic outlook compared to some peers.
How other firms see it
Firms like jpmorgan and citi are aligned in their belief that the yen may strengthen if certain conditions improve, while bofa remains contrary, advocating for a weaker yen based on ongoing economic challenges. This divergence reflects differing assessments of Japan's economic resilience and the effectiveness of MOF interventions.
Traders should also pay attention to the USD/JPY trajectory as it may reflect broader market sentiment regarding the Bank of Japan's policy stance and the implications of rising energy prices on Japan's economic outlook.
What the calendar says
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From the original
It was always going to be a tough one. Japan's ministry of finance (MOF) know very well that they are going up against a striking fundamental backdrop that dictates the yen to be lower. With the US-Iran war still ongoing, there is no change to the fact that all the factors in pla
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4 itemsUSD/JPY continues to nudge higher in testing Japan's intervention limits
Yen intervention risks failure as Iran war clouds Japan's currency defence
The desk views the recent Japanese yen intervention as potentially the least effective in recent history, primarily due to the unpredictable geopolitical landscape stemming from the Iran conflict. Per the full note from MUFG, the intervention, estimated at JPY5-6 trillion (approximately $32-38 billion), has provided only temporary relief as dollar-yen fell from near 160 to below 157. With the Federal Reserve's policy direction and Bank of Japan rate hikes critical for a sustainable move lower in dollar-yen, the desk highlights that the current geopolitical risks complicate the outlook. The consensus among firms leans towards cautious optimism, but the lack of imminent high-impact calendar events suggests limited immediate catalysts for a significant shift.
USD/JPY treads with caution amid fear of incurring another intervention hit
The USD/JPY pair is currently navigating a cautious landscape, primarily influenced by geopolitical tensions and market sentiment regarding potential intervention from Japanese authorities. Per the full note from Justin Low at investinglive.com, traders are wary of pushing USD/JPY higher, particularly around the 157.20-30 levels, where the Ministry of Finance (MOF) has shown a readiness to intervene. The recent uptick in 30-year Treasury yields crossing above 5% is also contributing to the dollar's strength, complicating the yen's position. With the MOF likely having intervened multiple times since last Thursday, the market is on alert for any signs of further action, especially if USD/JPY approaches critical resistance levels.
Japanese yen slowly erases intervention-driven gains as macro backdrop remains negative
The desk views the Japanese yen as facing continued bearish pressure, primarily due to persistent negative macroeconomic fundamentals and ineffective intervention measures. Per the full note from Giuseppe Dellamotta, the Bank of Japan's (BoJ) recent decision to maintain interest rates at 0.75% reflects a cautious stance amid rising inflation forecasts and downgraded growth expectations linked to geopolitical tensions. With the Fed's shift away from an easing bias and the potential for increased economic activity post-conflict, the yen's outlook remains bleak. Upcoming US economic data, particularly the NFP report, could further influence USD/JPY dynamics.
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