The ultimate test for Japan and the U.S. joint intervention: Can the yen break through the 155 "death line"? Bank of America warns that if it fails, authorities will have no cards left to play.

Noticing that the historic joint intervention by Japan and the United States is shifting market focus towards whether the yen can break through 155 yen per dollar, strategists believe this threshold is a key test for whether the yen's rebound momentum can be sustained. The significance of this threshold goes far beyond typical technical indicators. Japan's interventions in April and May of this year briefly pushed the dollar against the yen towards 155, but subsequently, the exchange rate climbed again, reinforcing the market's view that official actions were merely buying time. Now, investors are assessing whether a decisive break through this threshold signifies a structural change. As the Japanese and U.S. governments jointly support the yenan effort rare in decadesmarket bets are increasing. This marks the first coordinated buying of yen by the foreign exchange authorities of both countries since 1998, which lifted the yen by 5% from a nearly 40-year low of around 164 yen per dollar. Both governments have signaled they are prepared for further joint intervention if necessary. Shusuke Yamada, Chief Japan FX and Rates Strategist at Bank of America Securities, stated in an interview: "This time, the officials are genuinely determined to break through the critical level of 155. If they fail to surpass this threshold, I believe the market will conclude that officials have exhausted their policy tools." Yamada pointed out that staying below 155 could trigger a shift in market dynamics. As current buying demand gets absorbed, demand for dollars may diminish; once the dollar-yen exchange rate breaks through the recent trading range, Japanese exporters and other investors will increase selling of dollars. In a report he wrote, "In this scenario, the market dynamics of dollar-yen could shift from buying on dips to selling on rallies." The market positioning structure may amplify this shift. According to data from the Commodity Futures Trading Commission (CFTC), net short positions in yen held by asset managers and leveraged funds have risen to the highest level since 2024. Currently, the dollar-yen exchange rate has fallen below its approximately 158 200-day moving average for the first time since last October. Wells Fargo strategist Chidu Narayanan stated: "Breaking through 155 would increase the risk of an accelerated short squeeze; even a partial covering of these positions could create significant demand for the yen. As leveraged accounts reduce risk exposure and position imbalances are corrected, this opens up deeper retracement space for dollar-yen, potentially falling towards 152." Despite this, many on Wall Street remain skeptical about the yen's ability to sustain its upward trend, believing that if the Federal Reserve raises interest rates in the coming months, the yield advantage of the dollar will only strengthen. Citi strategists, including Daniel Tobin, expect that the recent strong momentum of the yen will prove temporary, suggesting that if official interventions cease, investors may once again consider it as a funding currency. They project that dollar-yen will likely remain constrained within the range of 156 to 161. Market capital flows have already shown signs that the initial momentum for the yen is waning. Jerry Minnear, head of Citi's Global Linear G10 FX Trading and FX Head for Europe, the Middle East, and Africa, noted that there has been an increase in buying of dollar-yen over the past few trading days, adding that leveraged accounts previously betting on official intervention are currently taking profits and tactically closing positions at current levels. Jane Foley, head of FX Strategy at Rabobank, believes the next phase of the yen's recovery depends on whether investors can be convinced that a broader change in Japan's policy mix is underway. She stated: "At this point, concerns about further interventions and a weaker dollar may be enough to prevent a significant rise in dollar-yen. However, in order for the yen to regain substantial ground, the market may need to have more confidence that the Bank of Japan (BOJ) can accelerate the pace of interest rate hikes and see more guarantees of fiscal prudence."