Where we are: USD/JPY is trading around 157.25 early in the New York session, consolidating after a volatile overnight session that saw the pair briefly spike lower following suspected intervention. The pair remains well above Friday’s close near 156.00, but is struggling to build on the momentum after pushing against 158.00 in Asia. Key levels to watch include 155.50 as initial support and 158.00 as near-term resistance.
What’s driving it: The underlying pressure on the Yen persists as the Bank of Japan maintains its slow normalisation bias, keeping the policy rate at 0.50%. While Ueda has flagged a willingness to hike further if the outlook tracks projections, the wide US-Japan rate differential continues to support the dollar. This is compounded by the market’s assessment of the BOJ’s relatively dovish stance compared to the Federal Reserve, who are showing no signs of easing. Although wage data supports the case for one more hike this year, Yen weakness past prior intervention zones materially raises MoF/BoJ communication risk, and this remains the biggest factor keeping USD/JPY gains in check.
- The Bank of Japan held rates steady at its last meeting on March 19th, but signalled a willingness to hike further.
- Speculative positioning remains crowded short JPY, with net non-commercial positions at -102,059 contracts, sitting at the 0th percentile on a 52-week lookback and raising squeeze risk.
- 10Y Breakeven Inflation rose 2.0bp d/d to 2.48%, widening the gap with a more stable Nominal 10Y Treasury, indicative of sticky inflation and a higher-for-longer rate regime in the US.
NY session focus: Traders will be closely watching for further signs of intervention from Japanese authorities, particularly if USD/JPY approaches or exceeds the 158.00 level. The Goldman Sachs estimate that Japan can conduct 30 more Yen interventions will remain in the front of minds. US data is light today, which means the session will likely be driven by risk sentiment and positioning flows. Key levels to watch are 156.50 and 158.00. The short JPY carry trade remains the favoured play but is increasingly at risk if the MoF steps in again. The pain trade would be a coordinated intervention effort pushing USD/JPY back below 150.