164 Remains Key Intervention Threshold for USD/JPY

The USD/JPY exchange rate has recovered to around 158.3 after last week's violent intervention-driven fall, but Crédit Agricole does not think the underlying case for a high exchange rate has disappeared.

Crédit Agricole forecasts USD/JPY averaging 162 in Q3 and 163 in Q4, while treating 164 as the effective ceiling authorities are prepared to defend. The bank believes that 164 remains the key intervention threshold despite weaker valuation extremes than in past episodes.

Crédit Agricole sees several reasons for renewed upside pressure: it expects the Bank of Japan's next rate hike only in mid-2027, sees US economic outperformance attracting capital into the Dollar, and expects oil prices to stay elevated relative to pre-war levels. Japan's fiscal position is another worry.

MUFG adds a less obvious reason why official Yen buying may struggle to produce a lasting move: Japanese retail margin traders were already positioned heavily for intervention before it happened. MUFG estimates that the implied short USD/JPY position was USD17.65bn, which is an extreme position and by some distance a record.