A sequence of verbal warnings from officials, an appreciating USD/JPY, and a growing bearish sentiment towards the yen in futures markets created the backdrop—while low holiday liquidity offered the perfect environment for a significant reversal. The USD/JPY has declined approximately 200 pips (-1.3%) following a three-day rally that halted just below 158. I highlighted that resistance zone in this morning’s report, and movements like this raise questions about whether the MOF considers technical levels—because it unfolded almost flawlessly.
It is important to highlight that yen intervention has typically coincided with significant peaks in USD/JPY, frequently persisting for weeks to months. The peak in 2022 recorded a decline of -16.3% for USD/JPY, whereas the top in 2024 resulted in a decrease of -13.8%. Even a minor shift of -5.1% surpasses the existing pullback of approximately -3.3% from the cycle peak. As Europe and the US have not fully responded yet, and considering the US dollar is already facing pressure from the recent ‘peace deal’ news, it could be a while before USD/JPY tries to reach 158 again. The Japanese yen stands out as the strongest major currency in this session, with USD/JPY, EUR/JPY, and GBP/JPY experiencing the most significant declines in percentage terms.
It is noteworthy that multiple FX majors have surpassed their average daily range—an occurrence that is infrequently observed during the Asian session. This indicates a tendency towards aggressive repricing instead of a gradual adjustment. As several pairs exceed 100% of their 10-day ATR, it is evident that volatility is on the rise, increasing the likelihood of continued movement as traders in Europe and the US respond. The daily chart indicates that USD/JPY is poised for a bearish outside day, although it has currently found support at the 200-day EMA. Considering it has already recovered more than a third of the purported intervention losses in the last hour, there is a possibility for it to move slightly higher from this point.
However, given the dissatisfaction among authorities regarding the strength of the yen, it is likely that those who favor a decline in USD/JPY may seek to re-establish their positions once the situation stabilizes. 156.50 and 157 represent potential levels for a pullback as market participants look forward to a retest of trend support around the 200-day SMA. For reference, a -5.1% decline – the minimum observed in recent interventions – could result in USD/JPY dropping to the monthly S2 pivot just above the 152 handle.