USD/JPY is trading at 160.54 at the moment of writing after breaking through the levels that had triggered a large-scale FX intervention in April and touching 106.87 (38-year highs) overnight. FX intervention alarms are as loud as they get, but we have to make a couple of considerations, ING’s analyst Francesco Pesole notes.

Intervention to become almost inevitable closer to 165

“Japan’s top currency official Masato Kanda had indicated in February that a 10 Yen (JPY) move in USD/JPY over a month was to be considered as ‘rapid’, implicitly offering some clues on the levels for intervention. The latest moves have been described as ‘rapid’, but not ‘excessive’, which may be the new term for a 10 Yen move in USD/JPY.”

“In April, USD/JPY had risen from a low of 150 to a high of just below 160 over a little less than a month when Japan intervened, which is consistent with Kanda’s hint. In the past 30 days, the low was 154.60, which would by the same logic place the intervention level at 164/165.”

“Should US data fuel more USD strength, then intervention would become almost inevitable – but with the new line in the sand potentially closer to 165, as mentioned. We may well see more verbal intervention and potentially a rate check (the latter will be evident in price action) before any new round of FX intervention is deployed.”