Crédit Agricole forecasts USD/JPY averaging 162 in Q3 and 163 in Q4, arguing that 164 remains the key intervention threshold despite weaker valuation extremes than in past episodes.

The US Dollar to Yen (USD/JPY) exchange rate has recovered to around 158.3 after last week’s violent intervention-driven fall, but Crédit Agricole does not think the underlying case for a high exchange rate has disappeared.

The bank still forecasts USD/JPY averaging 162 in the third quarter and 163 in Q4, while treating 164 as the effective ceiling authorities are prepared to defend.

“We continue to believe 164 in USD/JPY is the line in the sand for authorities,” Crédit Agricole said. “The recent joint intervention has reaffirmed this view.”

The important wrinkle is that this intervention began from a less stretched starting point than comparable joint operations in 1998 and 2011.

“Relative to the 1998 and 2011 joint interventions, the misvaluations in USD/JPY and EUR/JPY are less extreme currently,” the bank said, “so the present joint intervention has started from a weaker point.”

That matters because past coordinated interventions only bought time.

“The effects of the joint interventions in 1998 and 2011 faded after a few months as fundamentals took back control of FX markets,” Crédit Agricole said. “Likewise, if the fundamentals do not shift for the JPY, its current intervention gains could also fade.”

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USD/JPY has fallen sharply from July’s peak near 164, but has already recovered from the intervention lows below 156.

Crédit Agricole sees several reasons for renewed upside pressure: it expects the Bank of Japan’s next rate hike only in mid-2027, sees US economic outperformance attracting capital into the Dollar, and expects oil prices to stay elevated relative to pre-war levels.

Japan’s fiscal position is another worry.

“Investors will remain nervous about Japan’s fiscal sustainability given that PM Sanae Takaichi is not backing down from her fiscal spending plans,” the bank said.

Retail Traders May Be Blunting Intervention

MUFG adds a less obvious reason why official Yen buying may struggle to produce a lasting move.

Japanese retail margin traders were already positioned heavily for intervention before it happened.

“The USD/JPY short position increased in June to a record total,” MUFG said. “The implied short USD/JPY position was USD17.65bn which… is an extreme position and by some distance a record.”

That figure was larger than MUFG’s estimate of the probable total size of the latest intervention.

The implication is awkward for Tokyo. Retail traders who had already sold USD/JPY in anticipation of intervention were in a position to take profits as the pair collapsed.

“We can also assume that following intervention Japanese retail traders were quick to liquidate and were likely active buyers given the historic short position that was in place,” MUFG said.

“So Japan’s retail sector was likely a key buyer of USD/JPY on the decline during intervention, curtailing some of the impact of the MoF’s record yen buying intervention.”

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USD/JPY remains slightly higher in 2026 despite the sharp intervention-led reversal from July’s highs.

That helps explain why Crédit Agricole is reluctant to project a sustained move much lower.

Its research suggests Japan and the US have enough resources to defend 164, particularly if Tokyo makes use of the Fed’s FIMA facility, but the bank is not treating intervention as a substitute for fundamentals.

“We think they have enough to hold the exchange rate below that level,” Crédit Agricole said.

The likely result is an uncomfortable middle ground: authorities trying to stop USD/JPY breaking through 164, while interest-rate, energy and fiscal fundamentals continue pushing the pair back upwards.