DBS Group Research strategist Chang Wei Liang notes that USD/JPY has surged above the mid-162 area as markets probe Japanese authorities’ tolerance for further Japanese Yen (JPY) weakness. He highlights that the absence of fresh, forceful rhetoric from officials is encouraging shorts, while the previous restraint from implicit intervention threats is fading, leaving the JPY potentially on a softer footing despite solid Tankan survey data.

Markets test Japanese Yen tolerance

"USD/JPY has surged above mid-162 levels, with markets testing the Japanese authorities’ tolerance for JPY weakness."

"USD/JPY has accelerated higher after breaking through 162 yesterday, given no new rhetoric to deter shorts by government officials."

"Finance Minister Katayama only said that Japan will take “appropriate action at any time as necessary” yesterday, which has been interpreted by traders as the JPY being somewhat distant from the intervention threshold."

"The previous restraint on JPY weakness from implicit intervention threats is receding, and the JPY could be on a softer footing without more forceful rhetoric."

"Meanwhile, Japan’s Tankan for Q2 released today indicated a solid rise in sentiment across large manufacturing firms (22 vs Q1:17), helped by an exports boom and easing oil prices."

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