Synopsis:

Bank of America analysts indicate that Japan's Ministry of Finance (MoF) likely implemented three separate rounds of currency intervention on April 29 to support the yen, as observed through notable USD/JPY fluctuations. These actions could have significant short-term and long-term implications for the currency pair.

Key Points:

• Intervention Details: USD/JPY experienced unusual price movements on April 29, suggesting three potential intervention rounds by the MoF. The first intervention appeared around 1 PM JST, with subsequent actions pushing USD/JPY significantly lower from peaks around 160 down to 145.5, before stabilizing around 156.6.

• Short-Term Market Implications: In the short term, BofA expects the MoF might continue with additional interventions if the currency pair approaches or exceeds critical levels, to prevent further testing of their resolve. This could drive USD/JPY into the 151-153 range as the market reacts to Japan's defensive measures.

• Long-Term Considerations: Over the longer term, the MoF may need to intensify and prolong its intervention efforts compared to 2022 due to persistent upward pressure from carry trades and Japan's structural deficit. This pressure is likely to continue until there is a shift in the Federal Reserve's interest rate policy.

• Limitations and Risks of Interventions: BofA notes that there are practical limits to how much the MoF can intervene, estimated at around $300 billion for 2024. A delay in the Fed's expected rate cuts or an unforeseen rate hike could challenge these limits, potentially pushing USD/JPY above 160 and necessitating a response from the Bank of Japan (BoJ).

• Focus on Intervention Scale: Market participants will likely focus on the scale of future interventions. A significant intervention amount (greater than ¥10 trillion or approximately $65 billion) could be perceived negatively for the yen, as it might suggest a rapid depletion of Japan's forex reserves.

Conclusion:

The actions taken by Japan's MoF on April 29 underline the complexities of managing national currency values amid global financial pressures.