【The dollar/yen pair still lacks a clear direction even after intervention; what matters now is the lead in materials rather than price levels】

【The USD/JPY remains directionless “even after intervention,” and what matters now is the narrative driving move rather than level】

In the current foreign exchange market, the USD/JPY is once again showing a nervous pattern. Last week, expectations for intervention by Japanese authorities to buy yen intensified, and the market, which had been pushing toward the 160 level, was sharply pushed back. According to Reuters, Japan is believed to have intervened to buy yen around April 30 for the first time in about two years, and the yen temporarily rose nearly 3% against the dollar. Even after that, the market remains vigilant for additional intervention, and on May 4 the yen briefly surged into the mid-150s. Japanese Finance Minister Satsuki Katayama reiterated a firm stance to take decisive action against speculative moves. In other words, the current USD/JPY is not merely a differentials-driven carry trade, buta situation where policy responses themselves are likely to have a large influence on price movementson the stage, so to speak.

That said, intervention does not immediately guarantee a shift to a new high-dollar, high-yen appreciation trend. The Bank of Japan left the policy rate at 0.75% at its April 28 Monetary Policy Meeting, but among the nine Policy Board members, three opposed the decision and called for a rate hike to 1.0%. This indicates growing caution inside the BOJ toward higher crude prices and a re-acceleration of inflation. On the other hand, Governor Ueda noted uncertainties regarding the economy and Middle East developments, and did not signal an immediate move to a sequence of rate hikes. The market tends to interpret this as “there is room to raise rates, but it is not a situation where swift action is needed,” making yen-buying a somewhat incomplete factor for the time being.

What further complicates the market is the Middle East situation and crude oil prices. According to Reuters, as Iran intensified its military actions around the Hormuz Strait, Brent crude rose into the $114 range, and global stock markets fell. The Hormuz Strait is a key chokepoint through which about 20% of the world’s seaborne crude oil and gas pass; if this area becomes unstable, energy prices are likely to rise, exerting upward pressure on global inflation. For resource-importing countries like Japan, higher crude prices, combined with yen depreciation, tend to push domestic prices higher, further complicating the Bank of Japan’s policy judgments.

The U.S. side is not in a state where it can quickly pivot to dollar-selling either. On May 4, Federal Reserve Bank of New York President John Williams stated that current monetary policy is in a position to deal with uncertainty and that it is prudent to observe for the time being. Middle East supply disruptions and higher energy prices complicate the U.S. inflation outlook, making it difficult to foresee the Fed quickly becoming significantly dovish. At the March FOMC meeting, inflation remained elevated and uncertainty remained large, so from the perspective of the U.S.-Japan interest rate differential, the dollar/yen remains relatively supported.

In this context, what individual investors should be mindful of is,that the current USD/JPY is not a market where one can simply decide “up or down”as a direction. With intervention risk in place, there is always the risk of a sharp reversal when prices move upward. Conversely, if U.S. interest rates stay high and oil remains elevated, the downside for USD/JPY becomes more limited. In other words, it is more important to identify which factors are driving the market at any given moment than to focus solely on higher highs or lower lows. Rather than chasing new highs or lows, it seems sensible to narrow attention to periods of renewed liquidity, such as early London or early New York sessions, and to examine carefully whether news represents a temporary shock or something that could alter policy or interest-rate outlook, which would facilitate more sustainable trading.