US Yen Intervention May Need Stronger Follow-up: Bank of America

Bank of America (BofA) believes that the recent US intervention in the yen market may require further action to stabilize the currency. The intervention, which took place on July 31, was a significant event as it marked the first coordinated operation by the US Treasury since 1998.

The operation aimed to weaken the Japanese yen by purchasing it. However, the market moves associated with the intervention have largely unwound, and prices are back at pre-intervention levels. According to BofA, a price above 160 could trigger additional action from the US Treasury.

Bank of America emphasizes that broader economic policy measures in Japan, including interest rate hikes and fiscal policies, are crucial in addressing upside risks for the yen. The firm suggests that the primary prescription is for Japan to implement these policies rather than relying on US intervention.

BofA also highlights five factors that could make future operations more effective: intervening directly in USD/JPY instead of reallocating reserves from EUR to JPY, increasing the scope and size of interventions, justifying level-based interventions as driven by disorderly market conditions, operating at more liquid times of day, and involving the Fed's System Open Market Account (SOMA) if motivations are vast.