Japan likely pulled the trigger on intervention, says analyst

It is likely that Japan has pulled the trigger on intervention in USD/JPY, according to analysts at ING.

"There are strong indications – but still no officiality – that Japanese authorities intervened in the FX market this morning. USD/JPY touched 160.0 at around 02.30am BST and immediately faced two drops: a smaller one to 159.40, and then at 05.00am BST initiated a big fall to 105.0 (nearly a -3% move). It is now trading around 1.4% off the lows, at 157.20," said Francesco Pesole, FX Strategist.

"Japanese top currency official Masato Kanda replied, 'No comment for now,' when questioned about whether he had deployed FX intervention this morning. However, these moves have all the standard characteristics of currency intervention: the “line in the sand” at 160.0, the sharp increase in volume and the size of the move. In this last aspect, the JPY spike may have been exacerbated by thinner liquidity conditions on a Monday morning which is also a Japanese public holiday."

"For now, the market dynamics are broadly following those from 22 September 2022, when Japanese authorities intervened with around $20bn to support the yen. Back then, the USD/JPY initial drop was around 3.5%, followed by a rebound worth around half of the initial move. Shortly after, the pair briefly dropped again below the initial low and rebounded again. At the end of the session, USD/JPY was trading 2.3-2.5% below its pre-intervention level. If we followed the same script this time, USD/JPY would end up trading around 156.50 by the end of today."

"Markets will be monitoring any further comments from Japanese officials very closely at this point. First, to have some confirmation that they have intervened, but crucially to hear whether they signal this will be an “intervention campaign” as opposed to a one-off move. The tendency to sell the rally and re-test the officials’ tolerance is something we have seen in other FX intervention instances across the FX market – although the September 2022 experience suggests markets may be reluctant to push it too close to 160.0 again. This is also a week full of US events: a hawkish Fed and strong US data would put significant fresh pressure on the yen."

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