JPMorgan Says Japan May Have Limited Room for More FX Intervention
Strategist Junya Tanase said the authorities may have deliberately chosen to intervene before the Bank of Japan’s July 31 policy decision, expecting that Governor Kazuo Ueda’s dovish remarks could trigger another round of yen selling. “With it being difficult at this stage to send a clear signal on the pace of rate hikes, and with the market having largely priced in an October hike, the risk seems to be that the market could interpret the remarks as a dovish signal.” If the authorities did intervene, the scale may have been quite large, with the cumulative total possibly already exceeding 15 trillion yen ($94 billion) in 2024. “If foreign exchange reserves fall further, it may be difficult to restore them to previous levels through reserve management, which means there is limited room for further intervention.” Recent official comments about using the Government Pension Investment Fund, or GPIF, to curb yen weakness and rising Japanese government bond yields suggest that, as room for further intervention in the foreign exchange market becomes increasingly constrained, policymakers may already be considering other alternative tools.