Where we are: USD/JPY is currently trading at 157.11, up 0.22% on the day, having traded in a tight 156.76-157.18 range so far. This marks a continuation of the recent upward trend, with the pair testing levels not seen since intervention zones were previously defended. The pair is up from Friday’s close, and appears to be ignoring the pre-NY session weakness in Nasdaq futures.
What’s driving it: JGB yields are modestly higher, with the 10-year up 3bp to 2.513%, but this is being overshadowed by the widening US-Japan yield differential. The Bank of Japan’s slow normalisation bias continues to weigh on the Yen, particularly as markets increasingly price in further Fed hikes. With Ueda flagging a willingness to hike further only if the outlook tracks projections, the bar for hawkish BoJ surprises remains high. A further headwind comes from a strong bid for USD related to geopolitical stress.
- The US-JP 10Y yield spread is at +188bp, providing significant upward pressure on USD/JPY.
- Speculative positioning in JPY remains crowded short at the 13th percentile, raising the risk of a squeeze on any hawkish BoJ surprises or intervention.
- Bloomberg reports Alphabet is planning a debut Yen bond sale as AI race accelerates.
NY session focus: All eyes remain on the level of intervention from Japanese authorities. Keep a close eye on the 157.25 level as a key area of potential resistance, with a break above potentially opening the door to further upside. Conversely, a move below 156.75 would suggest intervention is having a meaningful impact. We expect dip-buying to remain a core feature of the order book. The US calendar is light today; the focus will be on risk sentiment from Wall Street open, and any headlines regarding Iran. The pain trade is a surprise intervention that triggers a violent short squeeze.