MUFG’s Michael Wan notes that softer US non-farm payrolls and suspected FX intervention supported the Japanese Yen, pushing USD/JPY sharply lower. He highlights that weaker payrolls reduce the likelihood of a near-term Fed rate hike but do not clarify the broader labour and inflation outlook. Wan stresses that upcoming US holidays, low liquidity and ongoing intervention risks could keep USD/JPY under pressure in the near term.

Yen gains on weaker data and risk

“Overnight the Dollar was generally weaker and the Japanese Yen strengthened from 162.83 to as much as 160.64, before trading at 161.28 at the time of writing. This was driven by softer than expected US non-farm payrolls data, coupled with suspected FX intervention by Japanese authorities. In particular, payrolls rose by 57k, less than consensus expectations for a 113k rise, coupled with some downward revisions to the previous months.”

“The overall implications for the Fed seems to be one where the payrolls report lowers the chance of a rate hike in the near-term, but has not ultimately clarified the health of the labour market and more importantly the path ahead for inflation. With the FOMC and Kevin Warsh stating that inflation has become the binding concern, the CPI and PCE inflation numbers are likely to become more important moving forward.”

“Meanwhile, the market remains alert on further FX intervention risks by Japanese authorities moving forward. As noted by news reports, the price action in USD/JPY yesterday might be suggestive of the Ministry of Finance stepping in to sell Dollars to curb Yen weakness, but this was not officially confirmed. Reuters news reported that Japanese officials may now abandon telegraphing their intentions to the market, which would be unlike the case with intervention that happened on 30 April following ample warnings.”

“Overall as we noted yesterday, with the key US holidays upcoming and as such a period of low liquidity, coupled with US data and non-farm payrolls supportive of a weaker Dollar in the near-term, we would be quite wary of intervention risks in the near-term. While it was not officially confirmed whether Japanese authorities intervened yesterday to bring USD/JPY lower, our bias is as such that intervention if it has indeed started may continue for a while more in order to help flush out speculative positions.”

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