The FX Trader: Coordinated JPY intervention changes the playing field.

The latest

Coordinated JPY intervention is a big deal, but how does the JPY path shape up from here? Since Friday’s follow-on JPY strengthening, the US made it clear over the weekend that it was also involved in strengthening the Japanese yen by, rather interestingly, confirming that the New York Fed sold euro versus the yen on Friday through accounts with Goldman Sachs and Morgan Stanley. Buying JPY via EURJPY selling sends the indirect message that the US doesn’t want to send any strong signals on its opinion of the US dollar level. This is perhaps a nod at the US treasury market, where yields are at recent cycle highs. US Treasury Secretary Bessent has no interest in adding any kind of negative pressure on treasuries when the cost of financing US debt is near/at record levels of GDP. Bessent was also at pains to point out that Japan could access the Fed’s FIMA repo facility to intervene, posting its treasuries as collateral to obtain USD to sell rather than selling its treasuries holdings in the open market.

Elsewhere, a key Japanese “currency official” at the Ministry of Finance, Atsushi Mimura, claimed already on Friday that the US was offering more than “moral support”. Early Monday, a further wave of intervention seemed in play, one that drove the JPY to new local highs before backfilling set in late and early Tuesday. Besides the coordinated intervention, Mimura claimed that FX policy would also be coordinated with the Bank of Japan, helping send short JGB yields sharply higher Monday. This latter is a key pillar of support for the JPY beyond the coordinated intervention.

Now, it’s a question of what to make of the situation and the move thus far as well as the intent and determination of both Japanese and US officialdom. The situation is difficult for traders, as it always is when quiet and low-volatility trading ranges suddenly yield to huge moves, but I take a stab in the bottom line below.

Bottom line(s): The first key bottom line is that we have a JPY signal here, not a US dollar signal. If US treasury yields remain elevated near cycle highs and we continue to see strong US data this week through Friday’s jobs report, we could have a regime of both a stable and even firmer US dollar and a strong Japanese yen. Some of the crosses like EURJPY, CHFJPY (the only positive carry choice for JPY longs) and GBPJPY look even more out of whack in valuation terms than USDJPY in the longer-term picture. So traders may want to widen the view beyond USDJPY and think JPY more broadly here.

The remaining key question: is the primary intent merely to staunch the bleeding in the JPY or to see a determined revaluation? I suspect the latter is the eventual goal – something like a 10% or greater move in JPY vs. EUR and USD seen as sufficient to discourage JPY carry trading again, with the hope that Japan’s savers revive their interest in domestic bonds, etc. But it is difficult to know how strongly the market will front-run officialdom and make the move more organically than anything we have seen thus far, where interventions quickly are backfilled, Japan’s policymakers could follow through with a surprisingly quick additional rate hike and hawkish guidance and perhaps sterner language or actual policy on domestic savings to bring additional JPY support, though so far Governor Ueda has been a slow mover in all of this.

Chart focus: EURJPY.
Of course everyone will focus on USDJPY as the most traded JPY pair and the chief vehicle Japan’s Ministry of Finance uses when pushing back against JPY weakness. Key resistance levels there include the 200-day moving average near 158.00 and then the psychological 160.00 level. But a look at other JPY pairs reminds us how profoundly weak the currency is across the board, and these JPY pairs could prove even more volatile than USDJPY itself if the US dollr remains firm. One of the most egregiously overvalued JPY pairs in my eyes has been EURJPY, which hit its record high since the Euro began trading in the 1990’s earlier this year near 188. Already in the summer of 2024 I thought the break above the prior high from 2008 near 170 was taking EURJPY to stretched levels. Back then, the Bank of Japan “intervened” in the JPY carry trade of the time with a surprise rate hike at its July 31, 2024 meeting. This triggered a meltdown from above 175 to below 155.00. Then in 2025 and into this year, the story became one of Japan’s “uninvestible” bond market as the longest Japanese Government Bond (JGB) yields showed that the country was finally exiting its multi-decade deflation and low rates era. The 30-year JGB yield benchmark, already creeping higher from early 2022 with the secular shift in global- and eventually Japanese inflation, began grinding higher from early 2023, when it traded around 1.25% to as high as 4.00% by May of this year. For perspective on what that kind of a yield rise means for holders of long-term bonds, consider the 0.5% 2060 JGB, which has fallen from its issuance at par (100) in 2020 to a current price just below 37.0. But that doesn’t mean that the bond is going to zero. At an effective yield of 4% to maturity, that bond offers far better inflation protection than in the ZIRP era.

With the latest bout of intervention, including the US selling euros versus the Japanese yen, EURJPY has dropped as low as 179.37 before bouncing here. The first resistance level is arguably the 182.00 area of the prior notable range low, though the 200-day (40-week) moving average is a more important one up at 183.73 currently. For an indication that we are to continue lower sooner rather than later, I would prefer that the 182.00-182.50 area holds. A more reasonable price for the EURJPY pair is something like 155-160 if the market and the authorities decide that Japan is becoming a “normal” country again with respect to inflation and monetary policy. And that area would still be at the high end of the long term range.