USD/JPY buyers did what was expected late yesterday after the Japanese Ministry of Finance ordered intervention to weaken the pair: They bought the dip.
After falling to 153.00, the pair climbed all the way to 156.00 as dip buyers piled in. However the momentum stalled and slowly reversed with the pair now trading at a US low of 153.55.
USDJPY 10 mins
What’s behind the latest leg lower?
It could be a stealthy and steady intervention or it could be longer-term USD/JPY longs (who have done very well) deciding that it’s time to clear out. The Fed yesterday wasn’t hawkish and only 38 bps of cuts are priced in this year. The message could be that the FOMC is going to get more dovish as the data deteriorates.
That last point is also crucial. Tomorrow we get the April non-farm payrolls report and a soft reading would roundly weigh on the dollar, particularly if the unemployment rate rises to 4% from 3.8%. Secondly, USD/JPY dip buyers could be reluctant to wade into the waters until the event risk of non-farm payrolls passes. Further, they could also be wary of a redux of MOF intervention afterwards, similar to the post-Fed intervention.