JPY: Assessing the FX Intervention Zone and Market Conditions

As the USD/JPY currency pair finds itself comfortably within the 145-150 FX intervention zone, market participants are closely monitoring the potential actions of the Bank of Japan (BoJ). This range has historical significance, as it was the level at which the BoJ executed substantial intervention last September and October, selling $70 billion to influence the exchange rate. However, the current landscape suggests that Tokyo authorities are taking a more cautious approach, refraining from immediate intervention despite the ascent of USD/JPY driven by rising US Treasury yields.

An important factor playing into this restraint is the substantial influence of US Treasury yields on the USD/JPY exchange rate. The authorities in Tokyo appear to be allowing the impact of these yield-driven dynamics to play out before deciding on any direct intervention measures. Additionally, the market conditions at present contribute to the hesitancy in FX intervention. The one-month USD/JPY traded volatility remains below 10%, in stark contrast to the levels of 14-16% observed during the BoJ's intervention in the previous year.

 

JPY: In the intervention zone

USD/JPY is now comfortably trading in the 145-150 FX intervention zone - levels where the Bank of Japan (BoJ) sold $70bn last September and October. It seems that Tokyo authorities are keeping their powder dry for the time being - not wanting to fight the US Treasury-yield driven rise in USD/JPY. Also arguing against FX intervention for the moment are seemingly orderly market conditions, where one month USD/JPY traded volatility remains sub 10% - compared to levels of 14-16% when the BoJ intervened last year. 

In other words, FX intervention may not be imminent and a larger trigger for a JPY rally would probably be some kind of sharp risk asset correction perhaps driven by those surging US Treasury yields.