USD/JPY fell from near ¥160 to around ¥156 this week as traders priced in the risk of fresh Bank of Japan intervention. The move follows Japan and the US reaffirming, on August 31, their commitment to coordinated currency action after a record ¥15.4 trillion intervention operation in July and August. Rising Japanese bond yields and shifting Fed rate expectations are now adding to the pressure on the pair.
USD/JPY dropped from the ¥160 area to around ¥156 on Wednesday and Thursday, as traders increased bets on further Bank of Japan tightening and stayed alert to the risk of another intervention. The pair had climbed back toward ¥160 in the weeks after Japan's last currency operation, testing how far Tokyo and Washington were willing to go.
Japan and the US agreed on August 31 to continue coordinating on the yen, reinforcing expectations that Tokyo could act again if the yen's decline turns rapid or disorderly. That reaffirmation follows a historic intervention over the summer.
Record ¥15.4 trillion intervention in July and August
Japan's Ministry of Finance confirmed it bought yen in coordination with the US Treasury on July 31, after USD/JPY had climbed toward ¥164 and the yen fell to its weakest level in about four decades. Japanese government data showed authorities spent ¥15.4 trillion, equivalent to about $96.5 billion, supporting the yen between July 30 and August 26 — the largest monthly intervention operation on record.
The operation initially worked. USD/JPY plunged from above ¥164 toward ¥155, with the yen gaining more than 5% against the dollar within days. But much of that move has since reversed, pulling the pair back above ¥160 and setting up this week's renewed test of the level.
Bank of Japan tightening bets add pressure
Japanese government bond yields have surged, with the 10-year yield moving above 3% this week for the first time since 1996, as markets increasingly price in another BOJ rate hike later this month. Such a move would narrow the interest-rate gap with the US and could encourage investors to unwind yen-funded carry trades.
The dollar side of the equation matters too. Market participants currently assign a 60% probability to a 25 basis point Fed rate increase taking the Fed funds rate to 3.75%-to-4.00% in September, with Friday's US labour-market report seen as a key test for that outlook.
Technically, USD/JPY has fallen to the ¥156.30 region but remains above the May low of ¥155.03. Only an advance back above the ¥160.39 September high and the 61.8% Fibonacci retracement at ¥160.64 may lead to the 78.6% level at ¥162.11 being back in sight. A sustained move below the ¥155.23-to-¥155.03 range would strengthen the case for a deeper correction toward ¥150.
Source: IG
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