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JPY Surges as Markets Wary of Intervention Risks

FOREX
  • Having touched fresh multi-decade highs overnight, USD/JPY trades sharply lower headed into NY hours as wires confirmed that the Bank of Japan, Ministry of Finance and FSA are set to meet to discuss financial markets, raising speculation that currency market intervention could be imminent. USD/JPY corrected sharply lower on the headlines, fading 50 pips to new daily lows, and opening a ~75 pip cap with the overnight high. Resultingly, JPY is comfortably the strongest performer in G10.
  • No surprise to see a spike in volumes for JPY futures on these Japanese headlines - over 8,000 contracts traded inside 60 seconds - but worth noting we saw similar moves and volumes spikes on a handful of occasions in October last year that generated speculation of intervention (e.g. ~10k on Oct26, ~20k on Oct17), after which the BoJ confirmed that no intervention had taken place at all over that month.
  • The USD is mixed, with the USD Index broadly flat - early strength was reversed on BoJ headlines, allowing the likes of EUR/USD, GBP/USD to edge off daily lows. NOK is the poorest performer on the day, following oil market softer, as Brent crude futures edge just over 1% off highs.
  • The Riksbank kept policy unchanged - as expected - but flagged May and June as potential meetings at which the bank could ease policy going forward. EUR/SEK traded firmer in response, but stopped short of a material test on the 200-dma at 11.5173.
  • Focus shifts to the post-meeting media briefing from Japan's top currency diplomat and an appearance from Fed's Waller, who is set to address the economic outlook.
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