ING’s Francesco Pesole notes USD/JPY volatility and suggests an initial move lower may already have involved FX intervention. With US holidays thinning liquidity, he sees elevated risk of further Japanese action, consistent with past behaviour. While softer US data helps the Japanese Yen near term, ING argues more hawkish Bank of Japan communication is needed to avoid another post-intervention rebound in USD/JPY.

Japanese authorities seen ready to act

"USD/JPY saw downside volatility yesterday, even before the soft US jobs report briefly pushed the pair below 161.0. We cannot rule out that this initial move was driven by FX intervention."

"With US holidays thinning liquidity today and on Monday, the risk of further intervention remains elevated despite the recent correction lower in USD/JPY. Japanese authorities tend to act around holidays and to spread operations over multiple days. Acting in the wake of a USD-negative event would also be consistent with their approach in 2024."

"A sharp decline in USD/JPY one-week risk reversals points to a higher implied probability of imminent intervention. While softer US data improves near-term conditions for the yen, we believe more hawkish rate communication from the Bank of Japan is still needed to prevent a repeat of the rebound in USD/JPY seen after the April/May intervention round."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)