Japanese Yen: 160 seen as credible intervention deterrent against US Dollar – BNY
Geoff Yu at BNY highlights that USD/JPY around 160 has become a credible deterrent level for FX participants, even without clear evidence of official intervention.
BNY analyst Geoff Yu suggests that a USD/JPY level around 160 could serve as a credible deterrent against intervention from the U.S. dollar. Despite the absence of clear evidence for official intervention, the recent decline in the Japanese Yen and the Bank of Japan's (BoJ) communication about potential rate hikes have not reignited foreign demand for Japanese assets.
Yu advises against pursuing USD/JPY levels above 160, as the potential FX-specific risk impact is minimal. He highlights that fixed income volatility is the primary driver of cross-asset volatility, including FX markets. The weakening of the Yen is perceived as a sign of fiscal dominance and is shaping the central bank's and finance ministries' decision-making.
In contrast to the USD/JPY's near-continuous rise from 155 to 164 between May and July, which did not generate significant cross-border asset interest, the sharp moves in the Yen this week are not attributed to official intervention. If so, this would mark the first indication that the 160 level in USD/JPY is recognized as a credible deterrent level for FX market participants. FX-specific risk, such as the recent moves, does not amplify risks on the margins.
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