Japan has most likely sold US Treasuries to intervene in the currency market and push USD/JPY lower. If such interventions become more frequent, they could drive US Treasury yields higher, creating an additional headwind for the US economy. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Japan has spent approximately ¥10 trillion on currency interventions.
- Net short positions on the yen have fallen sharply.
- The futures market is pricing in a 72% probability of a BoJ rate hike.
- Long positions can be considered as long as the USD/JPY pair trades above 156.5.
Weekly Fundamental Forecast for Yen
According to various estimates, Japan spent between ¥8.65 trillion and ¥10.08 trillion on currency interventions during Golden Week. The latter figure exceeds the ¥9.74 trillion deployed in 2024. The government’s apparent goal of deterring speculators seems to have been achieved: by the week ending May 5, net short positions held by hedge funds and asset managers had fallen to a one-month low. However, the key question remains: Was enough money spent to reverse the upward trend in the USD/JPY pair?
Speculative Positions on Japanese Yen
Source: Bloomberg.
It looks like speculators do not stand a chance. Japan holds colossal foreign exchange reserves of $1.2 trillion, and Goldman Sachs estimates that it could conduct currency interventions on a scale similar to those seen in late April and early May.
In reality, the bulk of these reserves consists of US Treasury bonds. The Federal Reserve’s report showed a decline in these holdings, most likely reflecting sales by Tokyo to finance interventions in the foreign exchange market. The problem is that selling Treasuries pushes their yields higher — exactly the opposite of what the US wants, as it remains determined to drive borrowing costs lower.
Custody Holdings of US Treasuries
Source: Bloomberg.
As a result, investors have revised their views on the issues Scott Bessent will discuss with the Japanese government. Earlier, rumors had been circulating in the forex market about a coordinated currency intervention similar to the Plaza Accord of 1985. Now, markets are recalling the US Treasury Secretary’s remarks that the BoJ might even raise rates to support the yen.
The futures market expects the monetary tightening cycle to resume in June with a 72% probability. However, the derivatives market has been wrong more than once in predicting earlier monetary policy tightening. The Bank of Japan always finds reasons to take its time. The interest rate differential with the US remains wide, which, along with high oil prices, calls for buying the USD/JPY pair.
Apparently, Tokyo needs a miracle in the form of a peace agreement between Washington and Tehran — one that would weaken the US dollar’s appeal as a safe-haven asset and give the Federal Reserve room to consider cutting the federal funds rate. Perhaps the Japanese authorities chose an opportune moment for intervention during Golden Week, when market liquidity is typically thin. However, from a fundamental standpoint, it is still too early to talk about a reversal of the bullish trend in USD/JPY quotes.
Weekly USDJPY Trading Plan
Against this backdrop, speculators have time to gradually shake off their fears and return to what they do best — buying the dips. The Japanese government is unlikely to intervene again unless the US dollar climbs back toward the 160 level. As long as USD/JPY quotes remain above 156.5, long positions can be considered.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of USDJPY in real time mode
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