Societe Generale Research discusses the scope for further waves of intervention by Japan's MoF to cap USD/JPY upside.

"Neither rate trends, nor growth prospects are pointing to a sustained yen recovery yet. The Bank of Japan has now spent something in the order of USD 240bn in FX intervention to cap USD/JPY, since mid-2022. USD/JPY has averaged 147 over that period. Given that at that price the yen has been, on average, 35% undervalued relative to purchasing power parity, this represents a huge effort to avoid something that once upon a time, economists thought could only happen temporarily. The challenge for the MOF and BOJ, is that despite 2-year JGB yields rising to their highest level since 1996, that’s still 2.7% below Treasury yields. The 1-year yield differential has narrowed, from above 4% to below 2%, but it too, remains big enough to keep Japanese investors in Treasuries. There is, therefore, a danger that the current unstable equilibrium (super-cheap yen, rising Japanese yields) can be sustained for a while longer," SocGen notes.

"It is much easier to imagine a significant yen revival in the event of a protracted period of slow (or no) US growth, than in imagining Japan can grow fast enough to life the yen on its own. In short, for now, intervention to cap USD/JPY is likely to continue but hoping for a turn in the USD/JPY trend, back towards 150 and beyond, is unrealistic," SocGen adds.