Triggers for the USD/JPY Trend Reversal

■ The Middle East conflict remains unresolved, limiting the sustainability of the yen's appreciation driven by Japanese currency intervention.  

■ In the short term, the USD/JPY exchange rate may stabilize in the 155–158-yen range. The key trigger for a trend reversal lies in the monetary policies of Japan and the US.  

   The Japanese government and the Bank of Japan implemented a reported 5 trillion-yen currency intervention on April 30th, breaking the oscillation pattern of the USD/JPY exchange rate, which had remained roughly between 158 and 161 yen since late March. Subsequently, on May 6th, during Japan's Golden Week, the USD/JPY exchange rate plummeted to 155.02 yen, a new low since February 24th. Looking back at April 29th and May 1st, 2024, Japanese authorities twice implemented intervention measures totaling approximately 9.7 trillion yen, buying yen and selling dollars, causing the USD/JPY exchange rate to fall from 160.03 yen to 151.85 yen in five trading days up to May 3rd, an appreciation of 8.18 yen. Regarding the actual results of intervention, the Japanese Ministry of Finance publishes the total amount monthly through the "Implementation Status of Foreign Exchange Balancing Operations" report, and discloses detailed information, including the implementation dates, quarterly (the total amount for the period from April 28 to May 27 will be announced at 7 pm on May 29). 

 
Finance Minister Katayama and Finance Minister Mimura have placed great emphasis on communication with the market, avoiding a situation where the price formation mechanism in the foreign exchange market fails. However, the USD/JPY exchange rate rebounded to the latter half of the 157-yen range during Asian trading hours today. Due to the slow progress in negotiations between the US and Iran to end the Middle East conflict, market concerns about the protracted conflict continue to rise. Against the backdrop of high crude oil futures prices, the trend of a strengthening dollar and a weakening yen continues, leading to widespread caution in the market regarding the sustainability of the intervention's effects. It has been reported that Finance Minister Katayama has held talks with US Treasury Secretary Bessent, who is visiting Japan, and confirmed that Japan and the US will maintain cooperation. Regarding the yen's depreciation, the two governments are acting in unison, leading the market to believe that the US government has effectively tacitly approved the Japanese authorities' currency intervention. 

 
Ahead of the US-China summit on June 14-15, if progress is made in the US-Iran peace talks and crude oil futures prices fall sharply as they did on April 8, the "safe-haven buying of the dollar" may reverse, thus weakening the dollar. On the other hand, with the Federal Open Market Committee (FOMC) meeting approaching on June 16-17, the market is also looking to see what policy stance Warsh, considered a potential successor to Powell, will take. Therefore, the dollar's performance is expected to remain range-bound in the short term. Against this backdrop, whether the yen can appreciate further largely depends on whether the Bank of Japan will implement additional interest rate hikes at its monetary policy meeting on June 15-16, and the pace of such hikes. The USD/JPY exchange rate is expected to remain stable in the 155–158-yen range in the short term.