The equity sell-off would generally set the perfect ground for a recovery in the oversold yen, but idiosyncratic factors continue to keep USD/JPY bid, ING's FX analyst Francesco Pesole notes.

Speculators remain clearly minded to buy USD/JPY

"The sudden escalation in Japan-China tensions has triggered retaliatory measures from Beijing, including travel restrictions, aimed at hurting Japan’s profitable tourism business."

"High-level diplomatic talks are already scheduled, and risks of further escalation do not seem too high. However, that is so far enough to cast more doubts about the ability of the Bank of Japan to hike rates in December. Adding to the dovish argument was data for the third quarter, released yesterday, which showed a 1.8% QoQ annualised contraction paired with a sub-consensus slowdown to 2.8% deflator."

"Speculators remain clearly minded to buy USD/JPY and test the tolerance of the Ministry of Finance, whose verbal warnings tend to have a progressively smaller impact on the market. Our view remains that the MoF prefers to intervene in the FX market after a USD-negative event (such as a soft jobs/inflation print), like it did in July 2024. Also, any line in the sand may be closer to 160, and we could see further upside pressure in the coming days."