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[MARKET ANALYSIS] USD/JPY breaches Thursday low, USD resilient in thin trade

The recent breach of USD/JPY's Thursday low indicates a continued bearish sentiment in the pair, influenced by verbal interventions from Japanese officials aimed at stabilizing the currency.

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[MARKET ANALYSIS] USD/JPY breaches Thursday low, USD resilient in thin trade

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  • USD/JPY took another leg lower this morning, surpassing Thursday’s low of 155.55 to mark a session trough of 155.48.
  • Thursday saw strong verbal intervention from Japanese Finance Minister Katayama, then later comments from top FX official Mimura, which pushed the pair lower in excess of 2%. Later in the session on Thursday, Nikkei sources said a Japanese government official confirmed the intervention to Nikkei, but we are still awaiting official confirmation, with Mimura declining to comment on intervention speculation, and figures showing potential FX intervention due late May. Some desks noted the remarks/potential intervention on Thursday may have had a follow-through to the downside in Brent prices as Mimura's "looking at markets on all fronts" could have been viewed as having cross-asset implications. However, there was no move in the Brent Jul'26 contract this morning. 
  • Though it is impossible to say whether intervention occurred in this morning’s 150pip+ move, 7:45 am BST (3:45 pm JST) marks the low-liquidity period and the final hour of the Tokyo trading session, a European holiday, and also month-end. Factors which provide a relatively low liquidity environment, which boost the effectiveness of intervention.
  • In terms of the move this morning, USD/JPY fell 156 pips from 157.05 to a low of 155.48, half of the move has now been pared as participants continue to price the still low real rates in Japan, and the potential for energy prices to remain high, which MUFG says will see USD/JPY rebound quickly.
  • DXY was resilient to JPY moves, with the index falling briefly below the 98.00 mark, then paring most of the move. DXY will likely attempt to return to 100 and 200 DMAs either side of 98.50, which it has mostly respected throughout the week.
Context

While the pair saw a significant drop in low liquidity conditions, the resilience of the DXY amidst these moves highlights a complex interplay of market forces, suggesting that while JPY may be under pressure, the USD remains robust due to persistent low real rates in Japan and high energy prices. Traders should monitor for potential confirmed interventions and other cross-asset impacts going forward.

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