📝See Risks Of USD/JPY Breaking Above 135 In Absence Of FX Intervention: ING

The Bank of Japan continued to intervene in the bond market as speculative bets tested the Bank’s tolerance. This time, the BoJ stepped into super-long maturities as well, which are a more vulnerable part of the yield curve as they are not “protected” by an official YCC target like the 10-year tenor. With the Fed now looking more likely to hike by 75bp than 50bp at tomorrow’s meeting, it is surely possible to see additional pressure on JGBs and indirectly on the BoJ to start unwinding its huge monetary stimulus.

A hawkish shift would also help stabilise the yen, but the central bank has so far reiterated its ultra-dovish commitment. This means that the yen remains vulnerable, especially if some stabilisation in risk sentiment lifts safe-haven support to the currency and leaves it exposed to the evidence of sharply rising yields and hawkish Fed tightening. We continue to flag the elevated risk of USD/JPY breaking significantly above 135.00 in the coming days unless Japanese authorities step in with FX intervention. - ING FX Strategy