Philip Wee of DBS Group Research notes that markets still focus on Japan’s struggle to support the Japanese Yen, while underplaying broader USD implications. He stresses that Washington’s stance gives Tokyo political cover to keep intervention on the table and warns that further operations in USD/JPY cannot be ruled out around or above the pivotal 160 level.

Tokyo retains cover for renewed action

“Markets should not misread US Treasury Secretary Scott Bessent’s request to the Fed to expand the Foreign and International Monetary Authorities (FIMA) Repo Facility from the current limit of $60 billion per counterparty borrowing limit for a JPY-negative development.”

“Washington recognised Tokyo’s increasingly determined and coordinated efforts to defend the JPY, with unwanted spillovers into the US bond market.”

“By publicly keeping the door open to another coordinated operation, Bessent has given Tokyo the political cover to make it costly for JPY bears to hold their short JPY positions.”

“Despite USD/JPY’s recovery from its 155 low on August 3 to 159 last week, the JPY is still 2.5% stronger from its pre-intervention levels.”

“Markets cannot rule out more interventions in USD/JPY around or above the pivotal 160 level.”