Intervention fears to continue to help keep a lid on USD/JPY upside - Credit Agricole
The desk anticipates continued intervention risks from Tokyo officials will likely limit the upside potential for USD/JPY around the 162 level. Per the full note from Credit Agricole, the Ministry of Finance (MOF) possesses sufficient foreign exchange reserves, allowing for over 15 interventions akin to those in April and May. Given Japan’s economic strategy, which benefits from a weaker yen to enhance exports and corporate profits, the likelihood of USD/JPY moving above 164 appears contained for the foreseeable future. This sentiment is echoed in forecasts by Goldman Sachs, which suggest that ongoing upward pressure on USD/JPY may persist, albeit restrained by potential interventions.
What the desk is arguing
The desk suggests that the combination of Japan's intervention strategy and its economic needs will keep USD/JPY growth in check. Per Credit Agricole, the proximity of USD/JPY to the 162 level amidst intervention fears means long positions may be less appealing, even with the prospect for some upticks in the pair.
Recent positioning data reveals limited long interest in the USD/JPY carry trade mainly because of intervention risks and a managed weak yen, which aids Japan's exports and business profits. With the current spot at 161.6930, this resistance illustrates the balancing act authorities must maintain between market dynamics and economic policies.
Where it sits in our coverage
Our median consensus target for USD/JPY is 155.0000, with a range of 149.0000 to 161.7145. Notable firm targets include: - Citi: Dec26 target of 155.0000 - Goldman: Dec26 target of 165.0000 - UOB: Mar26 target of 160.3427
The desk's outlook aligns closely with the expectations of firms like Goldman and Citi, which also anticipate a constrained upside for USD/JPY, particularly with targets within the broader consensus range.
How other firms see it
Aligned firms such as Citi, Goldman, and UOB share a cautious view on long-term gains for USD/JPY, reflecting similar concerns over intervention. In contrast, Commerzbank holds a more bearish outlook, forecasting down to 142.0000 by December 2026, indicating diverging expectations on the yen's strength.
The dynamics of USD/JPY may also influence or be influenced by broader market trends, such as movements in EUR/JPY and the Bank of Japan's monetary policy direction. Traders should be cognizant of these interconnected relationships.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Intervention risks from the MOF are expected to limit USD/JPY upside past the 162 mark.
- 02Goldman Sachs supports the view that USD/JPY could continue rising, albeit restrained by ongoing intervention.
- 03The consensus target for USD/JPY is at 155.0000, indicating limited expectations for a significant breakout.
- 04A weak yen policy benefits Japan's economy, complicating the prospect of a stronger yen without shifting economic fundamentals.
Market implications
Watch for potential interventions from the MOF, particularly as USD/JPY approaches critical resistance levels such as 164. Market sentiment could also be influenced by upcoming data releases, reflecting on Japan’s export performance.
Risks to this view
A significant shift in US economic performance, such as a surprise downturn, or a sudden pivot by the Bank of Japan towards aggressive tightening could undermine this outlook, leading to stronger yen appreciation.
USD/JPY — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
TMGM | — | 163.00 |
Goldman Sachs | — | 165.00 |
Commerzbank | — | 142.00 |
The currency pair continues to do battle in and around the 162 level to start the new week. And according to Credit Agricole, this sort of push and pull is likely to persist for longer with Tokyo officials set to help keep things in check - for now at least. The firm notes that: "The risk of intervention reduces the demand for being long USD/JPY as a carry trade.
And the MOF has enough FX reserves to perform over 15 more FX interventions of the size it did during April and May. With USD/JPY clearing the important 162 level, however, the key battleground for the exchange rate in the 162-164 region has opened up. In the end, Japan benefits from a weak JPY and so has to manage the political and economic realities around the currency.
The weak JPY is boosting company profits, exports and importantly is helping lift domestic investment to the levels Takaichi wants to see during her tenure. So we think Japan’s authorities will continue to manage a weak JPY but avoid USD/JPY moving above 164 in the long term." In essence, Credit Agricole sees a bit of a limit in terms of where USD/JPY traders can push the upside narrative for the currency pair. But in all likelihood, it also speaks to the potential for the pair to bounce back despite potential intervention rounds that Japan may decide to embark on.
And that is also precisely what Goldman Sachs is arguing, that being USD/JPY continuing to trade higher even if Japan decides to intervene in the market again: "We see no reason for the upward trend in USD/JPY to stop without an unexpected negative US growth shock or a BOJ pivot towards more aggressive policy tightening. Intervention can slow the move and buy time for a potential shift in the macro that then leads to sustained yen appreciation. But without that, the impact ultimately proves short-lived with diminishing effect, and we think that either a recession or more rapid BOJ hikes look unlikely over the coming year.
That implies that the trend higher in USD/JPY should extend, even if there are additional rounds of intervention that successfully reset the exchange rate to lower levels and suppress vol for some time." Goldman Sachs sees USD/JPY trading to 162, 163, and 165 in the coming 3, 6, 12 months respectively. This article was written by Justin Low at investinglive.com.
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