Japan's FX Interventions Face Growing Skepticism Amid Hawkish BoJ Risks

Japan's Ministry of Finance has released the details of its FX intervention operations from April to June, but market skepticism about their effectiveness remains high. Despite recent interventions that triggered sharp JPY rallies, USD/JPY ultimately appreciated to a 40-year high around 164.00 on July 23.

The size of Japan's most recent FX intervention on July 30 and July 31 will be released at the end of August, but estimates suggest it was a record ¥14 trillion. This operation led to a 8.5 yen rally, with USD/JPY slumping from an intra-day high of 163.74 on July 30 to 155.23 on August 3.

Market analysts at Brown Brothers Harriman believe that complacency about the effectiveness of Japan's interventions is premature, citing two key reasons. Firstly, the coordinated US-Japan intervention has raised the cost of fighting a stronger yen and put a firmer ceiling on USD/JPY. Secondly, risks are skewed towards further hawkish Bank of Japan rate repricing.