USDJPY breaks 161.95 resistance as suspected BoJ intervention sparks 160.50 drop

The Bank of Japan likely intervened in the foreign-exchange market Thursday, pushing USDJPY from above 161.95 to as low as 160.50, as authorities defended against yen weakness near 40-year lows.

"The speed and magnitude of the move strongly suggest official intervention, with the break above 161.95 likely triggering the response," said Hiroshi Nakamura, senior currency strategist at Mizuho Securities. "Authorities are defending a new line in the sand."

The pair had climbed above the 161.95 resistance zone — the former 40-year high from 2024 — before reversing sharply. The drop to 160.50 erased most of the day's gains, with the yen strengthening more than 1 percent intraday. The Nikkei 225 fell 0.8 percent as a stronger yen weighed on exporter shares. The pair later recovered to trade near 161.80 as traders remained cautious of further intervention.

The intervention highlights the BoJ's struggle to stem yen depreciation while the US-Japan rate differential remains wide. The Federal Reserve holds its policy rate at 5.25-5.50 percent, while the BoJ maintains its rate at 0.25 percent after raising it from minus 0.1 percent in March 2024. Markets now price a 45 percent probability of a BoJ rate hike at the July 31 meeting, according to OIS pricing. If the BoJ delivers, it would narrow the rate gap and reduce the incentive for carry trades that have driven the yen lower.

The suspected intervention comes after USDJPY posted a fresh 40-year high at 162.83 last week before tumbling to 160.45. The recovery from that low had been in its fourth consecutive day, with the pair reclaiming its 100-hour and 200-hour moving averages at 161.83 and 161.98, respectively. Thursday's break above 161.95 had initially suggested a bullish continuation before the intervention halted the advance.

The 161.95 level now serves as a key technical battleground. As long as the pair holds above it, the bias favors buyers, according to Nakamura. A sustained break below would represent a failed breakout and open the door for a deeper decline toward 160.00.

Japanese authorities have repeatedly warned against speculative yen moves. Finance Minister Katsunobu Kato said last week that officials were watching currency markets with a "high sense of urgency" and would take appropriate action against excessive volatility. The BoJ spent a record 9.8 trillion yen ($61 billion) in April-May 2024 during its last intervention campaign, according to finance ministry data.

The intervention's impact rippled across Asian markets. The yen's strength pushed the dollar index lower by 0.3 percent, while gold rose $12 to $2,368 per ounce as investors sought safe-haven assets. The yield on the 10-year Japanese government bond edged down 2 basis points to 1.12 percent, reflecting reduced inflation expectations from a stronger currency.

The last time the BoJ intervened in a similar fashion was in April-May 2024, when USDJPY traded near 160.00. That campaign involved multiple rounds of intervention totaling 9.8 trillion yen and temporarily pushed the pair below 152.00 before the yen resumed its decline. The current episode mirrors that pattern, with authorities stepping in after the pair breached a key psychological level.

For Japanese exporters, a stronger yen poses a direct earnings risk. Toyota Motor Corp., which generates about 70 percent of its revenue outside Japan, estimates that every 1-yen appreciation against the dollar reduces its operating profit by 40 billion yen ($250 million). The Topix index fell 0.6 percent Thursday, with automakers and electronics companies among the biggest decliners.

Looking ahead, traders will focus on the BoJ's July 31 policy decision. A rate hike would mark the central bank's second increase this year and show growing confidence in Japan's inflation trajectory. Core consumer prices rose 2.5 percent in May, remaining above the BoJ's 2 percent target for 26 consecutive months. If the BoJ stands pat, the yen could come under renewed pressure, potentially triggering further intervention.

This article is for informational purposes only and does not constitute investment advice.