Japanese Yen: Relief rallies seen as selling opportunity – BBH

Brown Brothers Harriman (BBH) analyst Elias Haddad has noted that the US dollar to Japanese yen (USD/JPY) currency pair has completely reversed its recent decline and is currently testing a key resistance level near 158.02, which is the 200-day moving average. Haddad suggests that relief rallies should be kept to a minimum, as they present opportunities to sell the currency pair.

According to Haddad, coordinated intervention between the United States and Japan, along with official warnings of potential action, significantly increases the cost of attempting to strengthen the Japanese yen, thereby establishing a firmer ceiling on the USD/JPY pair.

Haddad explains that Japan can finance its foreign exchange intervention by selling US dollars against Japanese yen without causing significant disruption to the US Treasury market. This is due to Japan's access to the Federal Reserve's Foreign and International Monetary Authorities Repo Facility (FIMA), which allows Japan to raise dollar liquidity using its long-term Treasury holdings valued at $1.05 trillion as of May.

Furthermore, Japan's holdings of US long-term Treasuries represent less than 3.5% of the overall Treasury market, meaning that even substantial sales of these securities would have only limited effects on Treasury yields.