Where we are: USD/JPY is currently trading at 159.78, marginally higher on the day (+0.07%) and probing the upper end of its intraday range (159.62-159.78). This level is reigniting intervention watch, with the pair inching closer to the psychologically significant 160.00 mark, a level that previously triggered MoF action. The current price action suggests a continuation of the upward trend, testing the resolve of Japanese authorities.
What’s driving it: Yen weakness is predominantly driven by the persistent dovish stance of the Bank of Japan relative to other major central banks. While the BoJ held rates steady at 0.50% at the March meeting and Ueda flagged a willingness to hike further if the outlook tracks projections, markets are still pricing in a slow pace of normalisation. The wide US-JP 10Y yield spread, currently at +186bp, continues to exert downward pressure on the Yen, making it an attractive funding currency for carry trades. The lack of fresh Japanese macro data today leaves the currency vulnerable to external factors.
- The 2s10s JPY curve is steep at +119bp suggesting that the market is expecting an increase in interest rates at some point.
- The BoJ Monetary Base for May was published yesterday, but the market reaction was muted.
- Net JPY non-commercial positioning is crowded short (-114,667 contracts), increasing squeeze risk on any hawkish BoJ surprise.
NY session focus: Today’s US JOLTS Job Openings data (10:00 ET) will be closely watched for signals on the strength of the US labor market and its potential impact on Fed policy. A stronger-than-expected print could further widen the US-Japan yield differential, potentially pushing USD/JPY higher, while a weaker print may provide some respite for the Yen. Key levels to watch are 160.00 on the upside (intervention watch) and 159.00 on the downside (intraday support). The squeeze trade remains a risk; a hawkish surprise from the BoJ could trigger a rapid unwinding of short JPY positions. The pain trade is a break above 160, forcing the MoF to intervene at a higher level than before, calling into question the credibility of their commitment.