It appears that Japan’s Ministry of Finance has tweaked the FX intervention strategy. USD/JPY dropped around 2% after the soft US CPI print yesterday, considerably more than any other USD cross, and the surge in JPY futures volumes seemed consistent with FX intervention, ING’s FX analyst Francesco Pesole notes.

Unexpected intervention in the Japan

“Japan’s top currency official Masato Kanda refused to admit that the MoF had stepped into the market but there have since been at least two reports citing internal sources that suggest intervention. If true, data at the end of the month will confirm this speculation. For now, given the rather unusual drop in USD/JPY, we’ll run with the assumption the MoF did intervene yesterday.”

“That would mark a change in Japan’s FX intervention strategy. Remember, that at the end of April, the MoF started intervening before a Federal Reserve (Fed) meeting, which has proven to be largely unsuccessful beyond the very near term. Now it looks like the MoF waited to take advantage of a USD-negative market event to boost the yen via intervention.”

“The US CPI release was good news for the Yen (JPY) regardless of unconfirmed FX intervention as there is a path ahead for USD/JPY to trade lower on a shrinking USD:JPY rate gap. At the same time, FX intervention lowers the chances of the Bank of Japan hiking in July to support the JPY, and it may still take time before USD/JPY can enter a sustainable downtrend.”