Apparent Intervention Fails To Trigger Sustainable Yen Recovery

The suspected intervention by Japanese authorities failed to lend durable support to the yen and USD/JPY promptly retraced its sharp downswing from Monday's Tokyo hours. The ~2.8% drop occurred amid light headline flow, after a similar ~3.8% drop last Friday, raising widespread speculation that currency officials likely participated in the market to arrest JPY depreciation.

• Tsy Sec Yellen told reporters that the Japanese government has not recently notified the U.S. of any plans to intervene in FX markets, even as "they did inform us previously of an intervention, which we understood was a concern over volatility." Her comments point to the lack of international coordination in Japan's efforts to defend the yen.
• Reports based on the BoJ's balance of payment figures suggested that the size of the intervention last Friday may have reached Y5.5tn, an all-time high.
• U.S./Japan yield spreads widened at the margin. The gap on 2-year yields grew 2.9bp, while 10-year differential was 2.7bp.
• Positive outturns from benchmark equity indices post-Asia created an unfavourable backdrop for the yen, despite concerns over possible continuation of the COVID-Zero policy in China.
• Spot USD/JPY last seen at Y148.86, little changed on the day. Topside focus falls on Oct 21 high of Y151.95, followed by Jul 1990 high of Y152.30. Bears look for losses towards yesterday's low of 145.56.
• Reminder that the BoJ will announce its monetary policy decision this Friday.