JPY: Uncertainty over intervention grows as Dollar continues to strengthen – MUFG

US Dollar Surges as Yen Faces Mounting Pressure

Derek Halpenny, Head of Research at MUFG, highlights that the US Dollar Index (DXY) has surpassed the 100 mark, driving USD/JPY to new highs for the year. Meanwhile, oil prices are holding steady near $100 per barrel. Halpenny points out that Japanese officials are under increasing scrutiny due to the weakening yen, but he believes that any intervention to support the currency is unlikely to yield lasting results, even if USD/JPY tests or exceeds the 160 threshold.

Japan Considers Responses to Yen Depreciation

Japan’s heavy reliance on imported energy makes rising energy costs a persistent concern. The situation is being made worse by the yen’s ongoing decline, intensifying calls for authorities to act. However, the likelihood of immediate intervention remains uncertain.

Halpenny suggests that if Japanese authorities do step in, the impact may be short-lived. The Ministry of Finance (MoF) might even permit USD/JPY to move above 160 to observe market reactions. Currently, the pair is trading above levels where, earlier this year, the Federal Reserve reportedly monitored USD/JPY rates, which previously led to a sharp drop in the currency pair.

He notes that the primary driver behind the yen’s weakness is the strength of the US dollar, making intervention less likely to succeed. While USD/JPY has reached new highs for 2024, EUR/JPY remains over 2% below its January peak. The yen’s depreciation is more pronounced against currencies like the Australian and Canadian dollars, but the overall decline in the BoJ nominal effective exchange rate (NEER) is modest, at just -0.4%.

Furthermore, Halpenny argues that the MoF would struggle to justify intervention on the grounds of market disorder, as USD/JPY has only risen a little over 2% in the ten trading days since the recent conflict began. However, a decisive move above 160 could trigger the kind of volatility that might warrant official action.

Looking ahead, Halpenny expects the US dollar to remain strong. With crude oil prices remaining high and the DXY breaking above 100, further gains in USD/JPY—especially if it moves beyond 160—could reinforce the dollar’s upward momentum.

(This article was produced with assistance from an AI tool and subsequently reviewed by an editor.)