USD/JPY: Intervention risk limits gains – BBH

160.00 resistance has been tested by USD/JPY. Brown Brothers Harriman’s Elias Haddad notes that the move has renewed intervention concerns following Japan’s large summer FX operations. Officials have warned that recent currency moves have been too rapid. Continued Dollar strength maintains upward pressure on the pair. However, the prospect of fresh intervention is seen as a constraint on sustained breaks above 160.00, making the risk balance less favourable for further JPY selling.

160.00 resistance puts officials on alert

"USD/JPY tested key resistance at 160.00, putting intervention risks back in the spotlight. Indeed, Japan’s top currency official, Atsushi Mimura, warned “the currency moves over the past few days have been too fast…It’s too early to forget what happened this summer.”"

"As a background, Japan spent a record ¥15.4 trillion ($97bn, or roughly 10% of its FX reserves) to prop up JPY on July 30-31 and August 3. The US also stepped in, with intervention estimated at $1bn. The FX reaction was swift."

"USD/JPY plunged from an intra-day high of 163.74 on July 30 to a low of 155.23 on August 3 and has largely failed to sustain a break above 160.00 since."

"Bottom line: USD strength keeps USD/JPY under upward pressure, but the threat of intervention tilts the risk-return against further JPY selling and should limit overshoots above 160.00."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)