COMMENT-Dollar may halve last week's dive vs yen, test MoF, BoJ yen support

USD/JPY extended its recovery from last week's 160.245-151.86 plunge that had come on suspected Japanese interventions, as Treasury yields retraced part of their post-payrolls and ISM misses dives, with 50% Fibo hurdle at 156.05 eyed before CPI and retail sales on May 15, along with Japanese policymakers.

With the 2022/23 highs by 152 — which triggered the 2022's Japanese yen intervention — last week used as support, and USD/JPY about to halve last week's dive, the question is whether the MoF and BoJ will become more proactive in the yen's defense.

That after U.S Treasury Secretary Janet Yellen last week said that interventions by other governments in currency markets are acceptable only in rare and extraordinary circumstances, perhaps putting pressure on the BoJ to further unwind its ultra-easy policies.

So far, swaps still see only two 10bp rate hikes by year-end and BoJ Governor Kazuo Ueda has merely acknowledged ongoing yen weakness could impact inflation and its policy, while delaying any decision on reducing QE.

Market angst regarding intervention will heighten if prices quickly rise toward 158 near where last week's second suspicious price action kicked off, and more so into the 160.245 peak by 1990's 160.35 high.

The recovery in Treasury yields and spreads over JGB yields following Friday's dovish jobs and ISM data has so far been modest and not adding much to existing bullish yields spreads. The May 15 CPI and retail sales reports are now key for the current pricing in of roughly two Fed rate cuts by year-end and the backing for taking on intervention risk.