Where we are: USD/JPY is trading around 159.05, consolidating after failing to break above the psychologically important 160.00 level overnight. The pair remains within sight of levels that triggered suspected intervention in late April/early May. The overnight range has been relatively muted and sits below Friday’s close, and well above the 152.00 low of late April.
What’s driving it: The Yen remains under pressure due to the BoJ’s relatively slow pace of policy normalisation despite recent hawkish rhetoric. While wage data supports the case for another hike this year, the market is questioning the timing and magnitude, particularly given Governor Ueda’s focus on anchoring inflation expectations rather than simply reacting to price pressures. This tepid approach contrasts with expectations that the Federal Reserve may still need to raise rates this year to contain inflation, boosting the dollar and US Treasury yields. While a June hike is possible following supportive comments from Bessent, the crowded short JPY positioning suggests squeeze risk, which could limit upside.
- Reuters wires flagged Bessent support for BOJ, clearing hurdles for a June hike.
- Bloomberg wires showed Morgan Stanley Japan Head saying a BOJ Hike is key to strengthening Yen (JPY/USD).
- CFTC data shows net non-commercial JPY positioning at -75,102 contracts, near the 8th percentile for the year, signaling squeeze risk.
NY session focus: All eyes will be on the 14:00 ET release of the FOMC Meeting Minutes. Traders will be scrutinising the document for any hints about the Fed’s willingness to raise rates further, which could provide a further tailwind for USD/JPY. Key levels to watch include 159.50 as initial resistance, followed by the 160.00 level. A break below 158.50 could trigger a deeper correction towards 157.00. The crowded short Yen trade is working for now, but remains vulnerable to a hawkish surprise from the BoJ or a change in risk sentiment. The pain trade remains a sustained break above 160, forcing a massive short squeeze and potential intervention fears to take hold.