ING’s Chris Turner argues that Japanese FX intervention is having diminishing impact on USD/JPY. He notes that high energy prices, rising US yields and a dovish Bank of Japan create strong headwinds for the Japanese Yen. Turner expects USD/JPY to drift back toward 160 in coming weeks unless there is a clear breakthrough in Gulf peace negotiations.

Yen fundamentals remain firmly negative

"USD/JPY is drifting higher again as it recovers from the effects of Japanese FX intervention. It looks reasonably clear that the Bank of Japan sold in excess of $30bn last Thursday and may have followed it up with more modest intervention over the last two trading days. Indications of whether there has indeed been follow-up intervention will not emerge until late Japanese time on Thursday when the BoJ updates its current account balance data."

"However, Japanese authorities will have their work cut out in trying to keep USD/JPY offered. Energy prices remain high and US interest rates are on the rise, which creates stiff headwinds for any yen appreciation."

"In short, the fundamentals remain firmly yen negative and Japanese authorities are just trying to buy some time."

"We suspect USD/JPY will drift back to the 160 level over the coming weeks unless there is a clear breakthrough in peace negotiations in the Gulf."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)