Where we are: USD/JPY is currently trading at 156.25, essentially unchanged on the day within a tight 156.02-156.52 range. Despite suspected intervention earlier in the week, the pair remains stubbornly close to recent highs. This level is testing the resolve of Japanese authorities and the market’s perception of their commitment to defending the Yen.
What’s driving it: The slow normalisation bias of the Bank of Japan continues to weigh on the Yen. While wage data supports the case for another rate hike this year, the market is clearly pricing in a slower pace of tightening compared to other major central banks. Furthermore, the widening US-Japan 10-year yield spread, currently at +184bp, continues to make USD/JPY an attractive carry trade, exacerbating the pressure on the Yen.
- The March BoJ meeting minutes released overnight offered little new information, confirming the existing gradualist approach.
- Finance Minister Katayama’s recent warnings of “decisive measures” against speculative trading serve as a constant reminder of intervention risk.
- Crowded short JPY positioning (net non-commercial at -102,059 contracts, 0th percentile), despite recent suspected interventions, raises the spectre of a potential squeeze should the BoJ deliver a hawkish surprise.
NY session focus: The 08:30 ET US Unemployment Claims release will be closely watched, though the primary focus remains on any potential intervention from the BoJ. Key levels to watch are the recent high of 156.52, and the 156.00 level as an immediate support zone. The working trade remains short JPY, though traders are clearly wary of headline risk. The trade at risk is those aggressively short USD/JPY who may be forced to cover on any hawkish BoJ rhetoric or surprise intervention. The pain trade is a sustained break above 157, forcing widespread short covering and triggering further intervention.