Key Moments
- USD/JPY has retreated from around 159.00 to near 153.00, yet remains approximately 4% above its early October gap level associated with the start of the Takaichi trade.
- BofA highlights a near-term USD/JPY range of 145 to 155 as a potential sweet spot for balancing equity and bond market stability.
- Japan’s July 2024 intervention briefly pushed USD/JPY from above 160 to near 140, but the pair later rebounded to around 159 by January 2025, underscoring limits of intervention without fundamental shifts.
Short-Term Policy Dilemma Around USD/JPY
As speculation over foreign exchange intervention remains elevated, uncertainty surrounding the short-term trajectory of USD/JPY continues to dominate market discussions. Key questions center on where the Ministry of Finance (MOF) might draw the line for direct action, what levels officials would ultimately tolerate once the dust settles, and how the currency pair might behave if it climbs back after several weeks or months in the absence of any change in underlying fundamentals.
The so-called Takaichi trade remains the primary source of downside risk for the Japanese yen, and policymakers in Tokyo are fully aware of that dynamic. At the same time, they are currently benefiting from two important offsets: the US dollar is described as being at weak extremes and appears highly vulnerable, and conditions in the bond market have stabilized notably since the most recent Bank of Japan (BOJ) meeting.
Recent Actions: Rate Checks But No Direct Intervention
Authorities have so far limited their moves to a few official “rate checks” since last Friday. These steps have helped prevent a more severe yen selloff, especially after the currency had previously weakened in tandem with the dollar. Nonetheless, the impact on USD/JPY has been relatively modest. The pair has shifted from around 159.00 to approximately 153.00, but it still trades about 4% higher than the early October gap that marked the onset of the Takaichi trade.
BofA’s View on a Near-Term Trading Band
Market participants are now focused on what might constitute an acceptable trading band for policymakers. BofA suggests that a balance between market stability and policy objectives could align with a USD/JPY range near 145 to 155 in the short run.
BofA notes:
“According to the Tankan survey, large manufacturers assume average USD/JPY rate for FY25 to be 146.50.. USD/JPY’s drop below 145 appears undesirable in the near-term. 145-155 range may strike a fine balance between stability in the equity market and the bond market. However, a volatile selloff in USD/JPY below 150 could lead to a sharp selloff in equities, which increases the bar for intervention with USD/JPY below 155.”
| Aspect | Level / Range | Context |
|---|---|---|
| Large manufacturers’ assumed USD/JPY rate (FY25) | 146.50 | From Tankan survey cited by BofA |
| Near-term “balanced” range suggested by BofA | 145-155 | Aimed at stabilizing equity and bond markets |
| Current post-rate-check area | ~153.00 | After decline from about 159.00 |
Medium-Term Preferences and Constraints
Looking beyond the immediate horizon, BofA argues that Japanese officials may prefer a stronger yen than implied by that near-term band, although they see clear limits to what intervention alone can deliver.
“In the medium-term, the government may be comfortable with a lower USD/JPY rate but not lower than manufactures’ “breakeven” USD/JPY rate, which was 127 as of late 2024/early 2025. 135-145 may be a desired range though this would require something more than unilateral FX intervention.”
| Horizon | Indicative Range | Condition |
|---|---|---|
| Near-term (BofA) | 145-155 | Balance between equity and bond market stability |
| Medium-term (BofA) | 135-145 | Would require more than unilateral FX intervention |
| Manufacturers’ “breakeven” rate | 127 | As of late 2024/early 2025 |
Lessons From Japan’s 2024 Intervention Episode
Recent history provides an important case study for investors gauging the durability of any future MOF action. Japan last intervened to support the yen in July 2024. That operation pulled USD/JPY down from levels above 160 to a test of 140 over roughly two months. However, the effect proved temporary: by January 2025, USD/JPY had recovered to trade back near 159.
This experience serves as a reminder that direct intervention does not necessarily produce lasting results when it is not accompanied by shifts in fundamental drivers. For market participants, the key question now is not only where Japan wants USD/JPY to trade, but also how sustainable any move will be if underlying conditions remain unchanged.
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