Today’s Market Outlook
USD/JPY Battles Around 157 as Equity-Driven Yen Selling Meets Coordinated Intervention Concerns
■ Market Overview
USD/JPY plunged to the low-155 range following last week’s coordinated US-Japan intervention, but it has since been bought back toward 158 this week.
Trading is currently centered in the 157 range, with post-intervention yen-buying pressure competing against yen-selling pressure driven by the US-Japan interest-rate differential.
One factor supporting USD/JPY on the downside is the recovery in risk appetite across equity markets.
In the previous US session, the Dow Jones and S&P 500 reached record highs. Asian equity markets have also remained relatively resilient today, supported by expectations of easing geopolitical risks and lower oil prices.
However, concerns about further intervention by US and Japanese authorities tend to intensify near 158, limiting the upside in USD/JPY.
For the time being, the market is likely to search for a new short-term equilibrium around the 157 range following the intervention.
■ USD/JPY
USD/JPY is trading near 157.55 during the London midday session.
The pair briefly rose to around 157.96, but its upside was capped just below 158 before retreating to the mid-157 range.
The market views the area around 158 as a level where concerns about additional intervention are likely to intensify.
Following last week’s coordinated US-Japan intervention, USD/JPY fell to around 155.23. Since then, renewed yen-selling pressure has pushed the pair nearly three yen higher.
During declines, dollar-buying and yen-selling demand remains supported by the large US-Japan interest-rate differential and yen carry trades.
During rallies, however, concerns rise over rate checks or additional intervention by US and Japanese authorities.
As a result, USD/JPY is supported on the downside but difficult to chase higher, leaving the 157 range as the current short-term equilibrium level.
■ Concerns Over Further Coordinated Intervention
US Treasury Secretary Bessent has reiterated a cooperative stance toward the Japanese government and expressed expectations that the Bank of Japan will continue raising interest rates, including as a way to prevent excessive yen weakness.
Following this coordinated intervention, market participants must now consider not only the response of the Japanese government but also the potential involvement of US authorities during periods of yen depreciation.
The market’s focus is on the exchange-rate level and pace of yen weakness at which the next intervention may occur.
As long as USD/JPY moves gradually within the 157 range, authorities may choose to monitor the market rather than act immediately.
However, if yen weakness accelerates rapidly from the 158 range toward 159 or 160, concerns about additional intervention are likely to increase sharply.
If authorities place greater emphasis on the speed of market moves than on a specific exchange-rate level, they may refrain from intervening even in the 158 range if the rise is gradual.
Nevertheless, a renewed acceleration in yen weakness after coordinated intervention would test the authorities’ resolve. Caution is therefore warranted when chasing USD/JPY higher.
■ Japanese Government Bonds and Bank of Japan Policy
A key factor for the future direction of the yen will be Japan’s government-bond market and the Bank of Japan’s policy response.
Concerns remain over uncertainty surrounding the funding of Japan’s expansionary fiscal policy and tax-cut measures.
If confidence in fiscal policy deteriorates, leading to selling in Japanese government bonds and higher long-term yields, the result could be yen weakness driven by concerns about Japan itself, rather than the usual currency support associated with higher yields.
Conversely, if the Bank of Japan can contain a sharp rise in long-term yields through government-bond purchases or other measures, yen-selling pressure linked to fiscal concerns may ease.
However, stronger government-bond purchases could be viewed as monetary easing and could become a separate factor encouraging yen selling.
How the Bank of Japan balances its rate-hike stance with its response to the government-bond market will be an important focus going forward.
■ Equity Markets
Risk appetite is recovering in equity markets.
In the previous US session, the Dow Jones and S&P 500 reached record highs.
US equity futures are also holding in positive territory across all three major indices today, leaving investor sentiment relatively constructive.
Higher equity prices tend to support yen carry trades and risk-driven yen selling.
Even after some yen-selling positions were unwound during last week’s coordinated intervention, the environment of equity markets reaching record highs can encourage renewed yen-selling demand.
Earnings reports are due today from Uber, Eli Lilly, Walt Disney, DoorDash, Expedia, and others.
If strong earnings continue, equity gains and yen selling could support USD/JPY.
Conversely, if disappointing earnings trigger a broader decline in equities, risk-averse yen buying could emerge.
■ Middle East Developments and the Oil Market
Supported by expectations of easing geopolitical risks, NY crude oil futures briefly fell into the 74-dollar range.
Lower oil prices ease concerns about worsening terms of trade for Japan, an energy-importing country, and may provide support for the yen.
In addition, if lower oil prices reduce concerns over a renewed global inflation surge, expectations for further rate hikes by major central banks may also fade.
Oil prices remain relatively calm during the London session, keeping safe-haven dollar buying limited.
However, the situation in the Middle East has not fully stabilized.
Any reports of new military clashes or tensions surrounding the Strait of Hormuz could revive higher oil prices and safe-haven dollar buying.
■ The Dollar
During the London midday session, the dollar is showing a modestly weaker tone.
USD/JPY has retreated from around 157.96 to approximately 157.55.
EUR/USD has risen toward 1.1545 and is trading near today’s high.
The US 10-year Treasury yield has returned to around 4.61%, close to the previous New York closing level, and is not providing conditions for strong broad-based dollar buying.
The rise in USD/JPY appears to reflect buying back after post-intervention yen strength and equity-driven yen selling, rather than broad dollar strength.
■ US ADP Employment Report
The US ADP employment report will be closely watched today.
The market expects an increase of 65,000 jobs, slowing from the previous gain of 98,000.
A stronger-than-expected result could reinforce the view that the US labor market remains resilient, potentially lifting US yields and supporting the dollar.
In that case, USD/JPY could again test the area around 158.
Conversely, a weaker-than-expected result could raise concerns about a slowing labor market ahead of Friday’s US employment report and strengthen dollar selling.
If the data are weak while concerns over coordinated intervention remain, USD/JPY could see a larger downside reaction.
■ US ISM Services PMI
The market expects the US ISM Services PMI to rise modestly to 54.5 from the previous 54.0.
Confirmation of resilience in the services sector could increase confidence in the US economy and support the dollar.
The employment and prices components will be particularly important.
A strong employment component could increase expectations ahead of Friday’s US employment report.
A rise in the prices component could highlight persistent services inflation and reduce expectations for Federal Reserve rate cuts.
Conversely, a significant decline in the headline or employment component could increase concerns about a US economic slowdown and lead to stronger dollar selling.
■ Today’s Key Economic Data
The main upcoming economic releases are as follows:
・Final services PMI data from France, Germany, the euro area, the UK, and the US
・Euro area Producer Price Index
・US MBA Mortgage Applications Index
・US ADP Employment Change
・US ISM Services PMI
・Brazilian central bank policy-rate decision
The main focus today will be the US ADP employment report and the US ISM Services PMI.
Ahead of Friday’s US employment report, both releases will be important indicators for assessing the strength of the US labor market and services sector.
■ Speaking Event
Late in the New York session, Federal Reserve Governor Cook is scheduled to speak on the economic outlook.
The market will watch for her assessment of US employment, inflation, and the future path of monetary policy.
Even without direct guidance on near-term rate hikes or cuts, her views on the labor market and inflation risks could affect US yields and the dollar.
■ Key Focuses for the London and New York Sessions
① Whether USD/JPY tests the 158 range
② Whether intervention concerns intensify near 158
③ Whether the 157 range becomes established as the short-term equilibrium level
④ Whether US ADP employment exceeds market expectations
⑤ The employment and prices components of the US ISM Services PMI
⑥ Whether US equities extend their record highs
⑦ Developments in Japan’s government-bond market and long-term yields
⑧ Changes in Middle East developments and oil prices
■ Summary
USD/JPY plunged to the low-155 range after last week’s coordinated US-Japan intervention, but it has since been bought back toward 158 this week.
Trading is now centered in the 157 range, where concerns over coordinated intervention are competing with yen-selling pressure driven by the US-Japan interest-rate differential and higher equity prices.
The Dow Jones and S&P 500 reached record highs in the previous US session, and risk-driven yen selling is supporting USD/JPY.
At the same time, concerns over additional intervention intensify near 158, making it difficult to chase the upside aggressively.
The US ADP employment report and ISM Services PMI will be the key drivers for the dollar later today.
Strong results could lead USD/JPY toward 158, although that would also heighten concerns about an official response.
Weak results could strengthen dollar selling, raising the possibility of a move below 157 and a test of the 156 range.
For now, the market is likely to search for a new post-intervention equilibrium around the 157 range while monitoring equity markets, US economic data, Japan’s government-bond market, and concerns about further intervention.
