MUFG’s Derek Halpenny argues that recent USD/JPY moves likely reflect renewed Japanese Ministry of Finance intervention, with the pair dropping nearly three big figures after testing the 158.00 area. He warns that, given Middle East uncertainty and other unpredictable factors, this round of intervention may prove less successful in curbing upside momentum in USD/JPY than previous episodes.

Suspected MoF action drives sharp drop

"When considering the past behaviours of the MoF / BoJ in Japan regarding intervention, there is a strong likelihood that the Japanese authorities contributed to the broad sell-off of the US dollar with another bout of USD/JPY selling intervention."

"In all the past interventions, the MoF has never intervened just once. In 2022, intervention took place in September and October on a total of three separate trading days. In 2024, the MoF intervened twice at the end of April and beginning of May and then twice again in July 2024."

"Today, after hitting close to the 158-level, USD/JPY fell nearly three big figures and is of a scale that is consistent with actual intervention by the MoF. Finance Minister Katayama made clear on Monday that “bold action” can be taken in FX markets."

"If action has been taken today, the selling of the US dollar would have been reinforced by the decline in crude oil prices and increased hope of progress toward a peace deal. But we believe there remains a danger that these bouts of intervention could prove the least successful of any of the previous periods of intervention mentioned above. The Japanese authorities are more at the mercy of unpredictable factors than in the past."

"How the Middle East plays out will be crucial on whether upside momentum in USD/JPY fades. While there is optimism today over progress toward peace that could change suddenly at any time."

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