Where we are: USD/JPY is currently trading at 156.19, down 1.08% on the day, and significantly off its overnight high of 157.93. The pair has broken below initial support at 157.00 and is testing lower levels following a three-day losing streak for the Yen. This level puts the pair near the low end of its intraday range of 155.05-157.93.
What’s driving it: The Yen is strengthening on a combination of factors, with the primary driver being increased speculation of intervention by the Bank of Japan (BoJ) and Ministry of Finance (MoF) following its recent pullback. Although officials have not confirmed any intervention, the market remains highly sensitive to any signals of official support for the currency, especially given that wage data consolidates the case for one more BoJ hike this year. Adding to this, the dollar is broadly weaker, with the DXY index down 0.41% to 97.79, amplified by a sharp drop in US Treasury yields.
- The BoJ’s last decision on March 19 saw the policy rate held at 0.50%, but Governor Ueda flagged a willingness to hike further if the outlook tracks projections.
- Speculator positioning remains crowded short in JPY, with net non-commercial positions at -102,059 contracts (-7,599 w/w), placing it at the 0th percentile of its 52-week range, signaling a potential squeeze risk.
- The US-JP 10Y yield spread has contracted to +185bp, as US 10Y yields have fallen to 4.353%, further supporting JPY strength.
NY session focus: Traders will be closely watching the 08:15 ET release of the US ADP Non-Farm Employment Change, as a significant deviation from the 118K forecast could trigger further USD weakness and JPY strength. Key levels to watch on the downside for USD/JPY include 155.00 and 154.50. The current trade that’s working is short USD/JPY, while the trade that’s at risk is holding onto USD/JPY longs given the potential for further intervention and the crowded short positioning in Yen futures. The pain trade here would be a hawkish surprise from the ADP report, triggering a sharp reversal and forcing Yen shorts to cover.