It was reported that coordinated Japan-U.S. yen-buying intervention had been conducted, shifting the focus to the possibility of additional intervention, an acceleration in the Bank of Japan’s pace of rate hikes, and measures to stabilize the bond market. The market continues to assess the effects of U.S. data and developments in the Middle East.
The governments of Japan and the United States announced that they had jointly conducted yen-buying intervention on 31 July, in a move to curb downward pressure on the yen. The intervention was supported by the U.S. stance, and the focus is now on the possibility of additional intervention and changes in rate-hike expectations following key U.S. data. The coordinated Japan-U.S. intervention temporarily pushed USD/JPY back from its highs, raising the possibility that it could move into a ¥155–¥160 range.
Upward pressure on USD/JPY receded, and the pair corrected to the low ¥155s on 3 August. The market is focused on whether additional intervention will occur and on the Bank of Japan’s pace of rate hikes, with views spreading that the likelihood of a September rate hike is increasing. U.S. employment data and developments in the Middle East could also trigger a market turning point, although some believe the sustainability of future intervention will be linked to the Bank of Japan’s policy decisions.
The focus of the authorities’ response is expected to center on three measures: the possibility of additional intervention, the Bank of Japan’s pace of rate hikes, and measures to stabilize the bond market. While indicating that it would adjust the timing and pace of rate hikes depending on exchange-rate movements, the Bank of Japan is seeing stronger market pricing for a September rate hike. Fiscal issues and expanded domestic investment by pension funds could become factors toward year-end.
(Note) Estimates of foreign exchange reserves and references to the FRB’s use of FIMA repo were mentioned, requiring attention to market views on the sustainability of intervention.