[MARKET ANALYSIS] DXY is slightly firmer, USD/JPY benefited post-Ueda, before sinking on potential MoF activity

• DXY is incrementally firmer this morning and trades within a 98.25-98.48 range, which is towards the lower end of the prior day’s confines. Newsflow for the index is lacking this morning, with all attention on the upcoming trilateral meeting between US-Russia-Ukraine; Trump reminded that “anytime we meet, it is good".
• Much more focus has been JPY this morning, and is currently at the top of the G10 pile – but has been subject to an exceptional amount of volatility. To recap, the BoJ maintained its short-term interest rate at 0.75%, as expected, with an 8-1 vote split as Takata voted for a 25bp hike. The Bank also revised its 2025 and 2026 GDP forecast higher, while shifting its 2027 forecast lower; 2026 inflation was revised higher to 1.9% (prev. 1.8%). Initially the JPY strengthened on the hawkish dissent and then the upward 2026 inflation revision higher, but then reversed as some analysts saw further upward risks to the projections. Following the announcement, Oxford Economics writes that we “plan to add one or two more rate hikes in our February forecast update in view of the persistent yen weakness”.
• Thereafter, Governor Ueda provided commentary at his presser, which spurred two-way action in the JPY but ultimately moved lower, as USD/JPY breached the 159.00 mark. Notable commentary included “conditions remain accommodative” (weighing on the JPY) and "must pay attention to even small FX moves" (strengthening JPY).
• The action did not end there for the JPY, with a large bout of pressure in USD/JPY seen soon after Ueda concluded his presser. In more detail, USD/JPY fell from 159.10 to 157.32 in an immediate reaction, before gradually scaling back to the low 158.00 mark where the pair currently resides. Some had touted intervention, though Bloomberg's Cudmore suggested the move is a rate check (i.e. the MOF calling round to see where banks think the JPY should be). In response, Finance Minister Katayama declined to comment if they intervened in the FX market, instead reiterating that they are watching FX moves with a high sense of urgency.
• G10s are mixed against the Dollar. GBP is towards the top of the pile, with upside facilitated by a hotter-than-expected Retail Sales report (which also included upward revisions to the prior); PMI figures this morning also paint a positive activity picture in the region. Thereafter, Cable took another leg higher to a session peak of 1.3532 after BoE’s Greene said “forward indicators for wage growth are even more concerning than inflation expectations”, with other commentary generally striking a typical hawkish tone. Elsewhere, EUR is mildly lower; earlier slipped to session lows on the subdued French PMI metrics (Services surprisingly contracted), but then jumped on the upbeat German figures.

The DXY index is slightly firmer but remains in a narrower range, with market focus shifting predominantly to the JPY following hawkish commentary from the BoJ and Governor Ueda. The initial strength in the JPY was reversed, suggesting increased volatility and uncertainty, particularly with potential upcoming MoF intervention amidst a rapidly changing FX landscape. This interplay could influence broader USD movements and complicate trader positioning amid mixed G10 currency reactions.