160 Becomes Credible Deterrent Level for USD/JPY

Japanese Yen (JPY) has seen significant weakness in recent times, but USD/JPY around 160 has become a credible deterrent level for FX participants, even without official intervention. This is according to Geoff Yu at BNY, who notes that despite the BoJ's communication about a possible rate hike, foreign demand for Japanese assets has not revived.

In fact, recent data suggests that fixed income volatility is driving cross-asset volatility, including FX, and questions over fiscal dominance are directly contributing to JPY weakness. This, in turn, is shaping central bank and finance ministries' reaction functions. As a result, USD/JPY has seen limited impact on cross-border asset interest.

Geoff Yu at BNY highlights that the 160 level in USD/JPY has been established as a credible deterrence level for FX market participants. This is evident from recent data showing that JPY's sharp moves are not based on official intervention, but rather market forces. Additionally, U.S. Treasury Secretary Scott Bessent stated after the July round of intervention that any activity wouldn't be to the detriment of the U.S. Treasury market.