US FX WRAP: Yen firms again amid touted intervention

The Dollar was mixed against G10 peers on Friday, with the Yen the clear outperformer, dragging the Buck lower and extending on Thursday's strength, while the Swissy was the distinct laggard. Yesterday, traders suggested that the NY Fed carried out rate checks on spot USD/JPY on behalf of the Treasury, while WSJ, citing sources, said today that the US Treasury Department has informed banks that it might make currency trades on Friday to support the JPY and strengthen its exchange rate against the dollar. The report sources added that some banks were told to have executable trades ready to exchange Japanese yen for euros. Elsewhere, we got reasoning from the three Fed dissenters, while 2027 voter Barkin said it's a 'close call' whether rates are high enough to bring inflation down, and he didn't know whether he would have joined three fellow regional Fed presidents who voted this week for higher rates.

As mentioned, the Yen was firmer and was the talk of the town again on Friday as more choppy price action was seen, as USD/JPY traded between 158.15 and 160.88. Following the aforementioned gains on Thursday, Nikkei sources suggested Japan and the BoJ intervened via USD selling, while desks conducted rate checks. In addition, the BoJ kept rates unchanged at 1.00%, as expected, with Takata dissenting for a 25bps hike. Guidance was largely unchanged, though the Outlook Report saw slight GDP upgrades and mixed CPI revisions. Ueda’s presser triggered only modest moves, with some upside seen on comments about inflation risks and policy flexibility.

Elsewhere in G10 FX, market-moving headlines were fairly contained, with currency-specific catalysts light. Antipodeans and the Pound managed to eke out slight gains, while the EUR was flat and CAD was marginally lower. For the Pound, BoE Chief Economist Pill stated that the MPC is not edging towards a hike, and Deputy Governor Lombardelli clarified the decision to hold rates unchanged this time was not a difficult one. Pill sees potential for more slow-moving, insidious second-round effects.

Lastly, China’s PMIs unexpectedly fell into contraction, reinforcing concerns over the recovery pace post-Politburo, although the Yuan reaction was muted.