According to ING’s Francesco Pesole, the Japanese Yen (JPY) experienced notable downside volatility in the USD/JPY pair, with an initial move lower potentially driven by foreign exchange intervention from Japanese authorities [1]. This volatility occurred even before a soft US jobs report briefly pushed USD/JPY below the 161.0 level [1]. Pesole highlights that the risk of further intervention is elevated due to thinned market liquidity during US holidays, a period when Japanese authorities have historically been more active in the FX market and have sometimes spread their operations over multiple days [1].
A sharp decline in USD/JPY one-week risk reversals is cited as evidence of a higher implied probability of imminent intervention by Japanese authorities [1]. ING notes that while softer US economic data has improved near-term conditions for the yen, this alone may not be sufficient to prevent a rebound in USD/JPY similar to what occurred after the April/May intervention round [1]. The report emphasizes that more hawkish communication from the Bank of Japan regarding interest rates is necessary to sustain yen strength and avoid another post-intervention surge in USD/JPY [1].
Overall, ING’s analysis suggests that Japanese authorities are prepared to act in the FX market, particularly in the context of US holidays and recent USD-negative events, consistent with their approach earlier in 2024 [1].
CONCLUSION
ING sees an elevated risk of Japanese FX intervention in the coming days, especially with US holidays reducing market liquidity. While softer US data has supported the yen, ING argues that stronger policy signals from the Bank of Japan are needed to prevent another rebound in USD/JPY following any intervention.