Experts agree: Last week’s intervention might have altered Yen outlook

Last week's coordinated US-Japan intervention in the foreign exchange market may have altered the near-term outlook for the Japanese Yen, according to analysts from leading commercial banks. The USD/JPY pair rose to the mid-157.00s from Monday's lows at 155.23 following the intervention. Rabobank's FX analysts noted that Japanese net shorts had reached their highest levels since 2024 before the intervention, and expect positioning to change significantly in the next data release.

MUFG/BTMU highlighted the role of comments by Japanese Finance Minister Satsuki Katayama, who revealed Japan's plans to utilize the Federal Reserve's Foreign and International Monetary Authorities (FIMA) Repo Facility. This facility enables Japan to access up to USD60 billion per day without selling Treasuries for up to seven days.

The facility, supported by the US, makes Tokyo's actions to strengthen the Yen more credible, potentially reducing the need for further intervention and Treasury sales. MUFG/BTMU analysts concluded that the latest development provides more confidence in their forecasts that the Yen is bottoming out. BBH experts observed that markets had questioned the Fed's inflation-fighting credibility, and suspected joint Japan and US intervention to strengthen the Yen added to the dollar's decline.

They estimated that the US Treasury had bought $5-10bn worth of Japanese yen on Friday, and stressed that joint FX intervention packs a punch, urging investors to follow official flows. UOB Group strategists retained a cautious stance on USD/JPY over the one-to-three-week horizon, watching the levels of 155.00 and 154.10. They acknowledged that downward momentum has slowed with the rebound, but will continue to hold the same view as long as the 'strong resistance' at 160.00 is not breached.

The Japanese Yen is one of the world's most traded currencies, with its value influenced by factors such as the Japanese economy, Bank of Japan's policy, bond yields, and trader sentiment. The Bank of Japan's mandate includes currency control, and its interventions are key for the Yen's value. The BoJ has intervened in currency markets occasionally to lower the Yen's value, but generally avoids doing so due to political concerns.

The gradual unwinding of the ultra-loose monetary policy has given some support to the Yen over the past decade, and the narrowing policy divergence between the Bank of Japan and other central banks is expected to continue strengthening the Yen. As a safe-haven investment, the Yen is likely to strengthen during market stress, providing investors with a sense of reliability and stability.