• USD/JPY stabilizes after a spike in volatility linked to a likely intervention by Japanese authorities.
• Geopolitical tensions in the Middle East support demand for the US Dollar.
• Markets remain cautious ahead of a data-heavy week in the United States.

USD/JPY trades around 157.00 on Monday, virtually unchanged on the day, after a sharp move during the Asian session briefly sent the pair down to 155.71 before a swift rebound.

This sudden move, without any clear fundamental catalyst, is fueling speculation of another intervention by Japanese authorities in the foreign exchange market. The Ministry of Finance has not confirmed any action, as usual, but the synchronized moves across all Japanese Yen (JPY) crosses reinforce this view. According to Reuters, Japanese authorities may have already spent around 5.48 trillion JPY last week to support the currency, while Finance Minister Satsuki Katayama reiterated that Japan stands ready to take decisive action against speculative moves.

Japan’s Finance Minister Satsuki Katayama repeated on Monday that Japanese authorities stand ready to take decisive action against speculative moves in the foreign exchange market. Speaking after the Asian Development Bank’s annual meeting in Uzbekistan, she stressed that such measures are in line with an agreement reached last year with the United States (US), while refraining from providing further details on any potential ongoing intervention, Reuters reports.

Meanwhile, several financial institutions, including MUFG and OCBC, believe that Japanese interventions could continue in the near term, especially if the pair remains close to the sensitive 160.00 threshold. However, they emphasize that the Japanese Yen’s longer-term trajectory will depend primarily on the Bank of Japan (BoJ) monetary policy path and potential rate hikes later this year.

Despite this temporary support, the Japanese Yen remains constrained by external factors. Persistent tensions in the Middle East, particularly around the Strait of Hormuz, are driving risk aversion and supporting the US Dollar (USD), which benefits from safe-haven flows. Uncertainty surrounding an incident involving US and Iranian forces, despite conflicting reports, is keeping investors on edge.

In this context, the US Dollar Index (DXY), which tracks the Greenback against a basket of major currencies, is holding around 98.25, slightly extending its recent rebound.

On the macroeconomic front, the week ahead is expected to be decisive for Federal Reserve (Fed) policy expectations. Markets are awaiting a series of key indicators, including Factory Orders, the ISM Services Purchasing Managers Index (PMI), and most importantly, Friday’s Nonfarm Payrolls (NFP) report.

Overall, USD/JPY remains caught between the risk of Japanese intervention limiting its upside and a fragile global environment that continues to support the US Dollar.