Joint US-Japan Intervention Sees Containment as Primary Goal

ING's Chris Turner believes that the recent joint US-Japan FX intervention is primarily a containment exercise, aimed at preventing USD/JPY from rising above 160. The action involves Washington participating via the Fed and Japan using the FIMA repo facility to raise dollars against Treasuries.

The reason for this intervention now is unclear, but Turner speculates that US Treasury Secretary Scott Bessent may have felt that a weak yen was undermining Japanese government bonds (JGBs), which in turn was weighing on Treasuries. Japan has announced its intention to use the Fed's new FIMA repo facility, allowing it to raise dollars against Treasury holdings rather than selling them outright.

Turner does not believe this intervention changes the underlying fundamentals of a near-hiking Fed versus loose Japanese policy, which are weighing on the yen. He doubts that USD/JPY can be driven sustainably below 155 as a result of this action.