TOKYO: Japan’s historic joint intervention with the United States is shifting market focus to whether the yen can strengthen beyond 155 per US dollar, a threshold strategists view as the key test for the rally’s staying power.
The level carries significance far beyond standard technicals.
Japan’s April and May interventions briefly dragged dollar-yen toward 155 before it resumed climbing, reinforcing views that official action merely buys time.
Now, investors are weighing if a clean break below it signals a structural shift.
Stakes are higher as Tokyo and Washington join forces to support the yen to a degree unseen in decades.
Their first coordinated yen-buying operation since 1998 sparked a 5% rally from a four-decade low near 164 per US dollar, with both governments signalling a readiness for further intervention if needed.
“This time the authorities are determined to really break 155, the key level,” said Shusuke Yamada, chief Japan foreign exchange (forex) and rates strategist at Bofa Securities, in a Bloomberg TV interview. “If they fail this time to break that level, then I think the market will see the authorities have exhausted policy options.”
A sustained move below 155 could trigger a shift in market dynamics, Yamada said.
Dollar demand may fade as existing buyers are absorbed, while Japanese exporters and other investors step up dollar sales once the pair breaks out of its recent trading range. “In that scenario, dollar-yen market dynamics could shift from dip-buying toward selling into rallies,” he wrote.
The shift could be amplified by market positioning.
Net short positions on the yen held by asset managers and leveraged funds have climbed to their highest levels since 2024, according to Commodity Futures Trading Commission data.
US dollar-yen is already below its 200-day moving average of around 158 for the first time since October.
“A move through 155 raises the risk of an accelerated short squeeze, with even a partial unwind of these positions capable of generating significant yen demand,” said Wells Fargo strategist Chidu Narayanan.
“This creates scope for a deeper correction in dollar-yen, potentially toward 152, as leveraged accounts reduce exposure and positioning imbalances are unwound.”
Still, many on Wall Street remain sceptical the yen can sustain its advance, arguing the dollar’s yield advantage will only strengthen if the US Federal Reserve raises interest rates in the coming months.
Citigroup Inc strategists expect the yen’s strength to prove short-lived, arguing investors are likely to resume using it as a funding currency if official intervention ceases. They project the US dollar-yen will remain largely bound to a 156 to 161 range.
Market flows already show signs that the yen’s initial boost is fading.
Jerry Minier, Citi’s global head of linear G10 forex trading and EMEA forex head, noted a pickup in US dollar-yen buying, adding that leveraged accounts are taking profits and unwinding tactical bets at current levels. — Bloomberg
