Smooth Operator

August 04, 2026

Elias Haddad

Japan can keep intervening without rattling Treasuries.

JOLTS data to remain consistent with a stable US labor market.

US manufacturing revs up in July.

USD is firm near yesterday’s high, driven mainly by JPY giving back part of its intervention-fueled rally. The MSCI world stock index hit a new record high underpinned by solid corporate earnings in both the US and Europe. Brent crude oil prices bounced back above $86 a barrel after testing its 200-day moving average at $81.23 yesterday.

President Donald Trump said he’s giving Iran a “last chance” to reach a deal “before decapitation.” We see crude oil prices as driving the war narrative, with price swings likely to dictate the pace of escalation and de-escalation. That should keep Brent crude oil prices within a broad $70 to $100 range.

US manufacturing activity is good and USD supportive. In July, the ISM manufacturing index rose more than expected to 55.6 (consensus: 53.9) vs. 53.3, the highest since May 2022 driven by solid expansions in New Orders and Employment. The Prices Paid index dipped to 71.1 (consensus: 71.0) vs. 73.0 in June, signaling diminishing upside risk to inflation.

Today’s June trade balance and Job Openings and Labor Turnover Survey (JOLTS) are unlikely to shift the needle on the Fed rate path. The JOLTS data is currently consistent with a stable US labor market. The hiring rate, quit rate, and opening rate were all unchanged in May while layoffs continued to be low and stable.

JAPAN

USD/JPY retraced all of yesterday’s slump and testing key resistance at its 200-day moving average (158.02). USD/JPY relief rallies should be limited and an opportunity to sell the cross on strength. The coordinated US-Japan intervention – and officials’ warning that they stand ready to act gain – significantly raises the cost of fighting a stronger yen and puts a much firmer ceiling on USD/JPY.

Japan can fund FX intervention (selling USD against JPY) without materially disrupting the US Treasury market. First, Japan has access to the Fed’s Foreign and International Monetary Authorities Repo Facility (FIMA) to raise dollar liquidity against its long-term Treasury holdings ($1.05 trillion as of May), rather than selling these securities outright.

Second, Japan holding of US long-term Treasuries account for less than 3.5% of the total Treasury market. As such, even meaningful sales would have only limited impact on Treasury yields.

Brown Brothers Harriman & Co. (“BBH”) may be used as a generic term to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries.This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners.© Brown Brothers Harriman & Co. 2024. All rights reserved.