USD/JPY has moved above its 2024 highs near 162, touching levels last seen in the 1980s, as markets watch for potential Bank of Japan action. Official selling totalled just over $70bn in late April and early May at levels just above 160, but the scope for further support to the Japanese yen is framed by a broader US dollar rally and by constraints around intervention tactics, including clustering behaviour and timing around market liquidity.
Attention is also on the calendar and Japan’s policy buffer. With remarks due tomorrow from Federal Reserve Chair Kevin Warsh and the June US jobs report set for Thursday, the US July 4th holiday on Friday is seen as a possible intervention window; otherwise, focus shifts to 16–17 July ahead of Marine Day on 20 July. If action is delayed and US data and Fed communication remain hawkish, USD/JPY is projected around 164–165. Japan holds close to $1.1trn in FX reserves, versus a decade low of about $1.07trn, while the IMF’s regime framework adds pressure: more than three intervention instances in six months, where an instance lasts no longer than three business days, could jeopardise its ‘free floating’ status.
Rising Pressure for Bank of Japan Intervention
With USD/JPY now trading above 165, we are on high alert for Bank of Japan intervention. The pressure is immense, as Japan’s latest Tokyo CPI reading of 2.7% highlights how the weak yen is fueling import costs. This is a major political issue that cannot be ignored for long.
We think the BoJ will likely wait for this week’s key US economic data to pass. The upcoming US jobs report this Friday is a major risk event that could push the dollar even higher. This makes the low-liquidity window around the US July 4th holiday a prime time for them to act, maximizing their impact.
Outlook for Yen and Limited Impact of Intervention
If intervention doesn’t happen this week, we should look towards mid-July, just before Japan’s Marine Day holiday on July 21st. This would follow the playbook from 2024, where officials used holiday periods for intervention. Should US data remain strong, we could easily see USD/JPY test the 167 level by then.
We know Japan’s FX reserves are not endless, currently standing near $1.15 trillion after some action earlier this year. They also want to avoid being reclassified by the IMF from a ‘free floating’ currency regime. This means any intervention will be targeted and decisive, not a drawn-out battle.
Ultimately, we must remember this rally is fundamentally driven by a strong US dollar. The latest US Core PCE data at 2.9% shows inflation remains sticky, keeping the Federal Reserve on a hawkish path. This policy divergence limits how much long-term support any BoJ intervention can truly provide for the yen.
