JPMorgan: Japan's Room for Further FX Intervention May Be Limited

On July 31, JPMorgan strategist Junya Tanase stated that Japanese authorities opted to intervene in the foreign exchange market ahead of the Bank of Japan's policy decision on July 31, anticipating that Governor Kazuo Ueda's dovish tone could once again trigger yen selling. At this stage, it is difficult to send a clear signal on the pace of rate hikes, and the market has largely priced in an October rate hike. 'There is a risk that this policy communication could be interpreted as dovish by the market.' If authorities do intervene, the scale of this intervention is likely to be substantial, with cumulative intervention amounts potentially exceeding the 2024 level of 15 trillion yen ($94 billion). 'If foreign exchange reserves decline further, it may be difficult to restore them to previous levels through reserve management tools, meaning the room for subsequent additional intervention is limited.' Recent official statements have mentioned using the Government Pension Investment Fund to curb yen weakness and suppress the rise in Japanese government bond yields. This indicates that as the space for FX intervention continues to narrow, policymakers have begun considering alternative policy tools. (Sina Finance)