BofA says US yen intervention may need stronger follow-up

Investing.com - Bank of America said the first coordinated yen-buying operation by the US Treasury since 1998 represents a significant event and markets should expect the possibility of future intervention.

The operation took place on July 31, but moves in USD/JPY have fully unwound from pre-intervention levels. A move above 160 could invite additional action, the firm said.

Bank of America said broader economic policy from Japan, including rate hikes and fiscal measures, is the primary prescription to stem upside USD/JPY risk. US involvement in foreign exchange can provide significant help, even if the ultimate motivations for the US and Japan differ.

The firm outlined five factors that could make future operations more effective in stabilizing or strengthening the yen. These include intervening in USD/JPY rather than reallocating reserves from EUR to JPY, upsizing operations beyond symbolic levels, not justifying level-based interventions as driven by disorderly moves, operating at more liquid times of day, and involving the Fed's SOMA account if motivations are as vast as suggested.

Bank of America said both Japan and the US should be incentivized to make coordinated intervention work. The market effect of the July 31 operation has already been undone, likely due in part to several reasons related to the operation's execution.

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