The Japanese and U.S. authorities conducted a coordinated FX intervention on 31 July. Both governments have acknowledged that the intervention was carried out. While the amount of yen buying by the US may be limited, the signalling effect of this rare, coordinated intervention is significant. We see the recent joint action as showing strong commitment from both sides. The fact that the operation was coordinated suggests that extensive currency diplomacy took place beforehand. The shift to coordinated intervention with the United States raises expectations for a broader policy framework aimed at stabilizing the yen. This is in interest of US as a rapidly depreciating JPY was aiding Japanese exports, pulling JGB yields higher & pushing long end UST yields higher along with it. If MoF Japan had intervened on it's own, they will have to sell USTs further pushing UST yields higher. By coming to MoF's rescue, US treasury has defended not only long end UST yields but also ensured Japan does not indiscrimately sell USTs to support it's fx operations. A coordinated intervention effectively blurs the ceiling associated with unilateral currency intervention. In addition, Treasury Secretary Bessent has encouraged the use of the Foreign and International Monetary Authorities (FIMA) Repo Facility, while Finance Minister Katayama has also stated that Japan intends to make use of the facility. The degree to which both governments have presented a united front is notable, both in emphasizing the potential firepower behind Japan's yen-buying intervention and in limiting any adverse impact on the U.S. Treasury market. Considering this joint intervention, we believe stars are now aligned for BOJ to hike in Oct’26 and Mar’27. We believe Fed might be on hold for REMCY26 and hence we view JPY likely to test 155 now more than 160. Our bullish view on JPY needs to be validated by BOJ hiking in Oct. We now see test of 155 levels of JPY imminent and a breach below this level might accelerate inwards flows from life insurance and exporters. The stop to the above view is BOJ delaying hike beyond Oct or JPY breaching 160 on a weekly basis. Our CY26 end target for JPY is now 152. CMP is 157.76.
