Rabobank’s Senior FX Strategist Jane Foley reviews the sharp USD/JPY declines in July and September, initially driven by joint Ministry of Finance (MoF)–US Treasury intervention and later without official action. The report notes that the Bank of Japan’s gradual rate hikes are eroding the Japanese Yen’s appeal as a funding currency for carry trades, even though recent price action has reduced urgency around finding alternatives.

Yen intervention and carry trade dynamics

"When the value of USD/JPY plunged in late July on the back of concerted intervention between the MoF and the US Treasury in support of the JPY, it raised questions about alternative funding currencies for carry trades."

"After USD/JPY dropped again in early September, this time without intervention, those questions appeared to become even more pertinent."

"Since then the JPY has lost momentum, at least against the USD, and this has dulled the urgency of this debate."

"Despite announcing an as expected rate hike at its September policy meeting, the BoJ’s guidance was not as hawkish as the market had hoped for."

"That said, the BoJ’s policy of gradually raising interest rates is still eroding the JPY’s funding currency appeal."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.