Where we are: USD/JPY is trading around 156.50, recovering from a dip to 155.50 following suspected BOJ intervention yesterday. The overnight range has been relatively contained, but the pair remains significantly above the prior NY close, signalling persistent underlying dollar strength despite the threat of further intervention.
What’s driving it: The Yen remains under pressure due to the significant interest rate differential between the Bank of Japan and the Federal Reserve. While the BOJ held rates steady at 0.50% at their last meeting on March 19th, Governor Ueda has flagged a willingness to hike further if the outlook warrants, but this has provided only limited support for the Yen given the hawkishness priced into US yields. The persistent weakness in the Yen past previous intervention zones materially raises the communication risk from both the Ministry of Finance and the Bank of Japan.
- The CFTC data shows net non-commercial JPY positioning at -94,460 contracts, near the 0th percentile of its 52-week range, indicating a crowded short position and heightened squeeze risk.
- The 2-year US Treasury yield sits at 3.92%, after rising 8bp yesterday, further widening the gap with Japanese yields.
- FT Markets reports that Japan has put the Yen market on alert for Golden Week action, raising the spectre of surprise intervention.
NY session focus: All eyes will be on the 10:00 ET release of the ISM Manufacturing PMI and Prices Paid data. Stronger-than-expected prints will likely fuel further dollar strength, potentially pushing USD/JPY back towards the 160 level and increasing the risk of further intervention. Key levels to watch are 155.00, a break below which could signal more sustained Yen strength, and 157.00, which could invite further intervention chatter. The trade that’s at risk is short USD/JPY, given the crowded positioning and the risk of further intervention. The pain trade for USD/JPY is a coordinated global easing cycle, something not currently priced.