Where we are: USD/JPY is currently trading around 157.00, having drifted lower overnight. The pair remains within a relatively tight range seen since the last bout of intervention, caught between dip-buyers and intervention fears. The intraday high sits near 157.25, while support is eyed around 156.50, near the prior NY session close.
What’s driving it: The BoJ’s slow normalisation bias continues to weigh on the Yen, despite some hawkish rhetoric. The market is pricing only one further hike this year and remains skeptical of the BoJ’s resolve to tighten policy materially. This is amplified by the fact that the 160 level, where intervention occurred, remains within shouting distance, keeping the market on edge. Although Japanese inflation printed at a four-year low last month, wage data from the spring Shunto supports the case for another BoJ rate hike this year.
- Ueda flagged a willingness to hike further if the outlook tracks projections, keeping the prospect of tighter policy alive, albeit at a glacial pace.
- Crowded short JPY positioning (4th percentile) creates a squeeze risk on any hawkish BoJ surprise or intervention.
- Rising US 10Y real yields, now at 2.18%, are a headwind for Gold and other risk assets that benefit from Yen carry trades.
NY session focus: Look for volatility to pick up if we break 156.50 support, potentially opening the door to a test of the post-intervention lows. Keep an eye on US data releases. Should the data support a continued rise in US yields, USD/JPY could break higher despite intervention risks. The market will also be sensitive to any further rhetoric from BoJ officials on currency intervention. The trade that’s working is fading rallies toward 157.50. The trade at risk is continued JPY shorts, given positioning and intervention risk. The pain trade for USD/JPY would be a coordinated global move away from dollar strength.