USD/JPY: Upside constrained by intervention risk – BBH

Renewed intervention concerns are tempering the scope for sustained USD/JPY gains above 160.00, even as continued Dollar strength maintains upward pressure on the pair. Brown Brothers Harriman’s Elias Haddad notes that USD/JPY has tested this resistance area, bringing Japan’s large summer FX operations back into focus. Officials have warned that recent currency moves have been too rapid, while the prospect of fresh intervention is seen tilting risks against further JPY selling.

Why is the key 160.00 level drawing official attention?

"USD/JPY tested key resistance at 160.00, putting intervention risks back in the spotlight. Indeed, Japan’s top currency official, Atsushi Mimura, warned “the currency moves over the past few days have been too fast…It’s too early to forget what happened this summer.”"

"As a background, Japan spent a record ¥15.4 trillion ($97bn, or roughly 10% of its FX reserves) to prop up JPY on July 30-31 and August 3. The US also stepped in, with intervention estimated at $1bn. The FX reaction was swift."

"USD/JPY plunged from an intra-day high of 163.74 on July 30 to a low of 155.23 on August 3 and has largely failed to sustain a break above 160.00 since."

"Bottom line: USD strength keeps USD/JPY under upward pressure, but the threat of intervention tilts the risk-return against further JPY selling and should limit overshoots above 160.00."

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