ING’s Francesco Pesole writes that markets are increasingly viewing 162.0 in USD/JPY as a new intervention threshold, helping explain the sharp intraday drop after the pair neared 162. He expects the 162–163 area to be the new zone for potential action, with lower liquidity around the early July US holiday and strong payrolls possibly prompting the Bank of Japan to intervene again.

BoJ intervention risk grows near 162

"Markets may be building some conviction that 162.0 in USD/JPY is the new line in the sand for FX intervention. This – alongside a softer USD environment – may help explain yesterday’s intraday drop after the pair touched a 161.95 peak."

"Our current expectation is that 162-163 is the new intervention area, although the pace and the drivers of the next round of appreciation will determine the urgency and size of interventions."

"The end of next week offers an opportunity for slightly lower liquidity around the 4 July US holiday (Saturday). If US payrolls are strong on 3 July, the Bank of Japan could indeed pull the trigger on new intervention."

"Our dovish Fed call makes us more optimistic that new FX intervention can have a more sustainable negative effect on USD/JPY, but timing remains very tricky; the market may well retain hawkish Fed expectations for a few more weeks, and Japan may be forced to intervene further than once more."

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