BNY’s Geoff Yu says JPY selling has largely run its course, while USD/JPY’s return toward 160 keeps intervention risk firmly in focus. The bank notes that positioning has not yet turned decisively long JPY, but sees scope for tactical yen buying to re-emerge if markets again anticipate official intervention.

Intervention risk anchors USD/JPY levels

“Exposures are rotating rather than reversing. JPY selling has largely run its course as intervention risk caps USD/JPY near 160, institutional investors are replacing retail as the marginal buyer of EM APAC semiconductors, and cross-border demand for long-end USTs is weakening without turning into outright selling. The common thread is greater selectivity: investors are still willing to own risk, but with less tolerance for policy, leverage, and duration uncertainty.”

“Our data show that JPY selling – both on an aggregate basis and on the dollar leg – has largely ended. Heavy sales came through after the initial round of intervention in July, a sign that the market was using the opportunity of a stronger JPY to either re-engage in carry trades or hedge local exposures. Even the headwinds introduced by the July FOMC decision and more recent Treasury buyback announcement didn’t alter the path.”

“After spending close to $96.4bn (with additional support from the U.S. Treasury), USD/JPY is back to 160, validating the JPY shorts and USD/JPY longs.”

“However, JPY sales have ceased. Notwithstanding IMF rules around intervention, the 160 level appears to be the hard “cap” for markets. The market isn’t fully turning into long JPY yet (or reducing shorts), but a repeat of early July – pre-intervention buying – is possible.”

“At current valuations, the market is fully vigilant of intervention at any point.”