Where we are: USD/JPY is currently trading at 159.52, up 0.10% on the day, consolidating near the upper end of its 159.31-159.53 intraday range. This marks a continued test of levels that have previously prompted intervention from Japanese authorities, and sits well above Friday’s NY close. The persistent upside pressure highlights the market’s skepticism about further imminent BoJ policy action and lingering carry appeal for USDJPY.
What’s driving it: The primary driver for USD/JPY remains the perceived divergence between the BoJ’s slow normalisation path and the Fed’s comparatively hawkish stance. While the BoJ held rates steady at 0.50% at their last meeting and Ueda has flagged willingness to hike further, markets are unconvinced, especially as Friday’s capital spending numbers pointed to a slowdown in corporate investment, raising concerns about the strength of domestic economic momentum. Upward pressure on the DXY, currently at 99.06, is also contributing to Yen weakness, further supported by the US-JP 10Y yield spread remaining wide at +177bp.
- BoJ’s slow normalisation bias despite wage data that consolidates the case for one more hike this year.
- US-JP 10Y yield spread remains wide at +177bp, continuing to provide incentive for carry trades.
- CFTC data shows a crowded short Yen positioning, with net non-commercial contracts at -114,667, near the 0th percentile (52w), suggesting squeeze risk on any positive JPY surprise.
NY session focus: Today’s key events are the 10:00 ET ISM Manufacturing PMI and ISM Manufacturing Prices releases, followed by 20:30 ET remarks from FOMC Member Powell. Strong US data could fuel further USD strength and push USD/JPY higher, testing the 160.00 level. Conversely, weaker data may offer some relief to the Yen. Traders will also be closely watching for any signals from Japanese authorities regarding intervention. The trade that’s working is buying dips in USD/JPY; the trade at risk is shorting the Yen into US data. The pain trade for USD/JPY would be a surprisingly hawkish signal from the BoJ combined with a dovish surprise from the Fed.