According to Brown Brothers Harriman’s (BBH) Elias Haddad, the USD/JPY currency pair has fully retraced its previous decline and is now testing a key resistance level at the 200-day moving average near 158.02 [1]. Haddad notes that relief rallies in USD/JPY should be limited and present opportunities to sell the cross on strength, citing the impact of coordinated United States–Japan foreign exchange intervention and official warnings that authorities are prepared to act again [1]. These interventions have imposed a firmer ceiling on USD/JPY and increased the cost of resisting a stronger Japanese Yen [1].
BBH highlights that Japan is well-positioned to fund FX intervention (selling USD against JPY) without causing significant disruption to the US Treasury market [1]. Japan can utilize the Federal Reserve’s Foreign and International Monetary Authorities Repo Facility (FIMA) to raise dollar liquidity against its long-term Treasury holdings, which stood at $1.05 trillion as of May, rather than selling these securities outright [1]. Additionally, Japan's holdings of US long-term Treasuries represent less than 3.5% of the total Treasury market, suggesting that even substantial sales would have only a limited impact on Treasury yields [1].
The analysis implies that the coordinated intervention and Japan’s financial positioning are likely to cap further upside in USD/JPY, and that any relief rallies should be viewed as selling opportunities rather than a signal of sustained strength in the pair [1].
CONCLUSION
BBH’s analysis suggests that coordinated US-Japan FX intervention has established a firmer ceiling on USD/JPY, limiting the potential for further rallies. Japan’s ability to fund intervention without disrupting the US Treasury market further supports this view, making relief rallies an opportunity to sell the cross.