Japanese Yen: Intervention fears cap losses against US Dollar – Rabobank

Rabobank's Senior FX Strategist Jane Foley has explained the recent joint intervention by Japan's Ministry of Finance and the United States Treasury to support the Japanese Yen. Foley pointed out the Federal Reserve's Foreign and International Monetary Authorities (FIMA) Repo Facility and questioned the Bank of Japan's potential for rate hikes.

She believes the 200-day simple moving average near USD/JPY 158 could act as resistance, limiting further US Dollar gains. Foley suggested that the joint intervention is reminiscent of the Clinton Administration's efforts in 1998 to support the JPY. Both authorities' actions may have been a useful short-term solution, but the long-term success of such interventions depends on the underlying fundamentals.

Foley also pointed out that underlying inflation could rise above the BoJ's 2% target, which might lead to accelerated rate hikes. However, no commitment to this action was made, disappointing JPY bulls. The market remains cautious due to concerns about the government debt. While the analyst is optimistic about Japan's economy, more confidence is needed for the BoJ to speed up rate hikes and for JPY to recover significant ground.

Until more economic data and assurances on fiscal prudence emerge, FX intervention and a weaker USD will likely prevent USD/JPY from pushing much higher. The 200-day sma close to USD/JPY 158 is expected to act as resistance.