Japanese Yen: Relief rallies seen as selling opportunity – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad reports USD/JPY has fully retraced its prior slump and is testing key resistance at the 200-day moving average near 158.02. Haddad argues that relief rallies should be limited and offer opportunities to sell the cross, as coordinated United States (US)–Japan FX intervention and official warnings impose a firmer ceiling on USD/JPY and raise the cost of resisting a stronger Japanese Yen.

Intervention caps upside in USD/JPY

"USD/JPY retraced all of yesterday’s slump and testing key resistance at its 200-day moving average (158.02). USD/JPY relief rallies should be limited and an opportunity to sell the cross on strength."

"The coordinated US-Japan intervention – and officials’ warning that they stand ready to act gain – significantly raises the cost of fighting a stronger yen and puts a much firmer ceiling on USD/JPY."

"Japan can fund FX intervention (selling USD against JPY) without materially disrupting the US Treasury market."

"First, Japan has access to the Fed’s Foreign and International Monetary Authorities Repo Facility (FIMA) to raise dollar liquidity against its long-term Treasury holdings ($1.05 trillion as of May), rather than selling these securities outright."

"Second, Japan holding of US long-term Treasuries account for less than 3.5% of the total Treasury market. As such, even meaningful sales would have only limited impact on Treasury yields."