US joining JPY intervention matters but policy & fundamentals matter more
The desk believes that while the potential for USD intervention by the U.S. carries weight, the underlying policy and economic fundamentals will dictate the USD/JPY trajectory moving forward. Recent U.S. employment data signaling a weaker labor market has heightened skepticism around the dollar's strength, as evidenced by the muted market reaction to disappointing non-farm payroll figures. Per the full note source, average hourly earnings have fallen back to pre-COVID levels, implying reduced inflationary pressures, which could signal a dovish shift from the Fed that contrasts starkly with the ongoing tightening stance of the BoJ.
What the desk is arguing
The desk argues that intervention from the U.S. could influence USD/JPY, but long-term sustainability will rely more heavily on U.S. monetary policy and economic data. Following a weaker-than-expected jobs report, the immediate market response was less aggressive than in prior years, with U.S. Treasury yields reflecting this sentiment by declining six to seven basis points.
Furthermore, there has been a noted decrease in average hourly earnings, now at 3.2%, reflecting a softening labor market that may impact the Fed's future rate decisions. The drop in the unemployment rate, despite a reduction in the labor force, adds a layer of complexity that traders must navigate.
Where it sits in our coverage
Our consensus target for USD/JPY is 150.0 by December 2026, with a range of 145.0 to 165.0 according to various firm forecasts. Notably, firms like goldman project a target of 165.0 for December 2026, while commerzbank states a more conservative target of 142.0.
This view is somewhat in alignment but also diverges as it leans towards the lower end of the consensus with mufg projecting 146.0 for December 2026, favoring caution amid the evolving economic landscape.
How other firms see it
Several firms are aligned with a cautious bullish outlook for USD/JPY, including rbc and jpmorgan, both anticipating targets around 156.0 and 157.0 respectively for March 2026. Conversely, firms like deutschebank maintain a more bearish stance, with December targets significantly lower than the current market price.
Traders should also keep an eye on the EUR/USD movements, as fluctuations in this pair may provide insight into broader dollar dynamics amid contrasting monetary policies between the ECB and the Fed.
01The potential for USD intervention is overshadowed by fundamental economic indicators.
02Recent U.S. jobs data has created skepticism regarding dollar strength.
03Current consensus predicts USD/JPY will settle at around 150.0 by December 2026.
04The divergence in targets across banks suggests varied outlooks on the dollar's future.
Market implications
Watch for USD/JPY behavior around the 161.00 level as it approaches critical support and resistance thresholds. Future Fed communications, particularly regarding rate policy following the recent jobs report, will also be pivotal in shaping market sentiment.
Risks to this view
A notable risk to this outlook is a stronger-than-expected rebound in U.S. employment figures or aggressive Fed tightening that could elevate dollar strength unexpectedly. Additionally, a substantial shift in the BoJ's monetary policy could shift the dynamic and strengthen JPY.
Welcome to the MUFG Global Markets FX Week Ahead podcast, with Derek Halpenny, Head of Research, Global Markets EMEA and International Securities. It's Friday, 7th August 2026, and joining Derek to pose some questions on the financial market themes for the week ahead is James Rolston, Vice President, FX Institutional Sales. This podcast is only intended for professional investors in jurisdictions in which its use is permitted under applicable laws, rules and regulations.
It has been produced for information purposes only and should not be construed as investment research or advice. MUFG EMEA disclaimers and disclosures can be located on our website. Happy Friday Derek, thank you very much for joining me.
Yes, same to you James. If possible, we've just had the payroll numbers come out, can we just quickly run through what you took from it? Yeah, wow, you know, what a figure.
Like I remember, many years ago, a figure like this would have caused absolute carnage on the trading floor. But you know, the front end to yield in the U.S. is down six, seven basis points. So the reaction, you could argue, has certainly been a bit muted.
You know, looking at the details, you know, clearly obviously the NFP itself was very negative. There was a big drop in government jobs, which looks related to local government education, which could be volatile during the summer period. So maybe the markets are a little bit skeptical about that.
The unemployment rate dropped. Kevin Hassett has been out talking about baby boomers retiring early and certainly, you know, when you look at the unemployment rate and how that was derived, over the last two months, there's been the labor force shrinking by a million and employment shrinking by 600,000. So hence the drop in the unemployment rate.
But you know, from an inflation perspective, average hourly earnings down to 3.2%. Essentially we're back at pre-COVID levels and certainly, whatever you want to argue about the details and what we should question and, you know, the reliability or unreliability of the data, most employment data certainly is pointing towards limited, very limited risks in terms of inflation coming from the labor market. So this is definitely a plus in regard to our view that the Feds will not have to raise rates this year and let's see what happens.
I think the other point to make quickly, James, in relation to the market reaction, obviously we've got CPI next week. We've got another payrolls report. We've got another CPI report in September before the FOMC meeting.
So in that sense, we still have three more big prints before the meeting itself. So a little bit more to digest before we actually get to the actual rate decision. Yeah.
Like the probability of a hike has come down, of course. You know, it's still, I think, around 35% probability of hike and that's because we still got those three key data points to go before the meeting. Makes sense.
Even after what I thought was a big number change as well, it's slightly muted. So we've got time on our side to see how this plays out. Yeah.
Yeah. Muted in rates and pretty muted in FX as well. Okay.
Great. Going from a muted reaction to an absolutely not muted reaction when we talk about dollar yen and the intervention over the last week, there's been a lot to digest, lots of implications everywhere. Where would you like to start in trying to dissect it all?
Well, I think, you know, we've written the FX Weekly today, which is just about to be published. You know, like I have argued, and I think it's valid to argue that it is significant that the U.S. got involved. That's the first point.
The second point that we've been making to clients this week is that it's more significant that still the fundamentals fall into place. Now, when we look back historically, we can say, well, when intervention, joint intervention took place in the three clear examples, 1995, 1998, and then in 2011, it marked a turn in dollar yen. Now, that's kind of correct, but I would still argue it's more about the fundamentals than the actual intervention itself.
So take, for example, 1995, dollar yen plunged below 100 and went down to 80. So it was falling sharply, and Japan was intervening, and then the U.S. got involved in early April, 3rd of April, 5th of April. We had a bit of a bounce, but then they intervened again on the 31st of May.
So there was a series of joint interventions, with Japan intervening as well on its own on many occasions, and really, there was a statement made about the need for fundamentals to change. The BOJ cut rates by, I think it was 125 basis points. The Bundesbank, again, similar amount, I think 125 or 150 basis points.
And then, after a very slow first half of the year in 1995, an impact from rate hikes from the Fed in 1994, the U.S. economy then started to recover, had a very strong second half of the year. So cuts in the Bundesbank and the BOJ, the U.S. economy picking up, dollar yen rebounded, confidence returned to the U.S. dollar, boom, we had our turn. So that was 95. 98, very interesting.
Obviously, that was the end buying like we've had now, and that was on the 17th of June, the joint intervention. Dollar went back above those levels in August, and then the spreading of the Asian financial crisis to a Russian default, to a collapse in the LTCM, the hedge fund in the U.S., prompted the Fed to, well, in hindsight, panic. Slash rates by 75 basis points between September and November, dollar yen plunged.
There you had your turn. And then in 2011, intervention, the coordination intervention after the terrible, tragic earthquake and tsunami, resulted in dollar yen moving higher, that was on the 18th of March. But in fact, dollar yen broke those levels.
Japan intervened on its own, 31st of October of that year, and it was the biggest single day of intervention that Japan ever conducted. And then, of course, moving forward into 2012, you had the arrival of Shinzo Abe, the sea change in economic and monetary policy, and then dollar yen turned. So, you know, timing and fundamentals were important.
And in that sense, going forward from now, obviously you need that for this joint intervention to be successful. So we've got a significant moment that the joint had this intervention, but we have to see the fundamentals that essentially are going to change for this to have a lasting effect. Yes, yes.
Okay. And there are other elements, like, you know, I would describe the U.S. involvement on this occasion somewhat half-hearted. Okay.
Kind of for their own specific domestic reasons, in particular U.S. treasury yields. But there was no official statement released. Okay, Scott Besant put something on X, but there was no official statement.
They didn't sell dollars. They sold... Euros.
Yeah. They didn't even tell Europe. The ECB found out the next day, last Saturday.
It's probably a tiny amount, and the U.S. described it not as intervention, but as reserves reallocation. Reallocation, yeah. So, you know, and then there's this talk about Japan using FEMA, the repo window to swap U.S. treasuries rather than selling them.
Why would Japan do that? You know, they've got $160 billion worth of cash in reserves. To use FEMA, you're charged.
So again, that doesn't really make sense, but by stating this is the message from the U.S. that, you know, they're conscious of the implications for the U.S. financial markets specifically. Okay. So, talking to a few people, the yen negatives that we sort of are alluding to, some of the big ones being fiscal expansion with the current, you know, tax cuts that are coming in place potentially, BOJ independence, another one that we're looking at, then foreign direct investment and how that's working, how the Japanese investors are really looking to purchase assets abroad.
So, all these sort of factors do play in. Yeah. Are those the sort of points that you're looking at that we need to get clarification on to change this story?
Yeah. Like, what I would say is I definitely don't think we're going to get something like what happened in 1998. Okay.
Where, by the way, on three trading days, we dropped by over 20 big figures. It was a mass liquidation of a big carry trade. While there's carry, of course, in the market, it's not as surely focused in dollar-yen.
And as you alluded to, James, there are these kind of negative fundamental factors that aren't going to go away because of intervention. In particular, foreign direct investment outflows, which have been huge and they've been trending higher pretty much since Abenomics in the early 2010s. Last year, 25 trillion yen worth of FDI outflows.
And then the current account surplus is now constructed more of investment income surpluses rather than trade surpluses. Trade surpluses tend to get converted back into yen more frequently. A lot of the investment income surpluses stay in foreign currency.
So that's a kind of a structural change as well that is more yen negative. So I wouldn't expect a dramatic turn lower. But again, a very important element is the BOJ and there were hints by both Scott Besant saying he thinks the BOJ will do the right thing, intent, FIIC, Vice Finance Minister for International Affairs, Mimura, also indicating that FX policy would be done in conjunction with monetary policy.
We expect a hike in September and another hike in January 2027. So if the Fed don't hike and all the pricing of hikes comes out of the U.S. curve and the BOJ hike by more than what's currently priced into the Japanese curve, the mix of that after the joint intervention, I think is compelling enough to certainly argue that we're not going to go back up and test those highs and that we should see dollar yen moving certainly low 150s into the maybe high 140s next year. So yeah, but there's a window right now where of course that, you know, the BOJ view that we have is not the market view and I guess we could be wrong on that.
They do tend to be overly cautious. So the fundamentals in the shorter window might not work out. Of course payrolls does suggest it will work out.
Japan has a role to play as well and, you know, they need to show intent by hiking in September. Fantastic. That's all my questions that I have on the intervention this week.
Is there anything I've missed that needs to be flagged? No, I think we've covered it all really. Like obviously inflation next week will be pretty crucial, but I think, you know, even before intervention we had a bearish dollar view.
So I guess the intervention maybe reinforces it, but we still need the fundamentals to play out as we expected. Brilliant. Okay.
So next week CPI, here we come. Indeed. Brilliant.
Thank you very much, Derek. Have a great weekend and speak to you next week. And you, James.
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