USD/JPY Relief Rallies Seen as Selling Opportunity Amid US-Japan Intervention

According to Brown Brothers Harriman's (BBH) Elias Haddad, relief rallies in the Japanese Yen are seen as an opportunity to sell the currency. The USD/JPY has fully retraced its prior slump and is testing key resistance at the 200-day moving average near 158.02.

Haddad argues that coordinated US-Japan FX intervention and official warnings have imposed a firmer ceiling on USD/JPY, making it more expensive for investors to resist a stronger Japanese Yen. This, in turn, raises the cost of fighting against a stronger yen.

As explained by Haddad, Japan can fund FX intervention without disrupting the US Treasury market due to its access to the Fed's Foreign and International Monetary Authorities Repo Facility (FIMA). Additionally, Japan's holding of US long-term Treasuries account for less than 3.5% of the total Treasury market.

This means that even meaningful sales would have a limited impact on Treasury yields.