Synopsis:

HSBC expects Japanese authorities to remain vigilant as USD/JPY nears the 155.00 level, which could prompt a currency intervention or price check. The JPY has gained recently amid speculation of intervention, but external pressures, including high US Treasury yields and the renewed popularity of carry trades, continue to weigh on the currency.

Key Points:

• Intervention Risks: Japanese officials, including Finance Minister Kato, have emphasized monitoring FX moves with urgency, signaling possible intervention if USD/JPY approaches excessive one-sided levels, particularly around 155.00.

• Market and Policy Dynamics: With US Treasury yields remaining elevated after a less dovish FOMC, USD remains firm, adding pressure on the JPY as yield differentials favor the USD.

• BoJ Outlook and Carry Trade Resurgence: Market expectations for a BoJ rate hike in December are slim, and recent comments by Japan’s Democratic Party head support a steady BoJ stance. Higher US yields amid reduced election uncertainty are fostering carry trades, further weighing on the JPY.

Conclusion:

HSBC anticipates possible intervention or price checks as USD/JPY approaches 155.00, though carry trades and high US yields add downside pressure to JPY. With intervention risks and external headwinds in play, HSBC sees JPY navigating between potential support from Japanese authorities and ongoing USD strength driven by yield differentials and risk-on sentiment.