MoF Intervention Damps Hawkish Sentiment, Payrolls Loom as Binary Risk Event

A combination of suspected intervention from Japan's Ministry of Finance and less hawkish remarks from senior FOMC officials have driven USD/JPY sharply lower, sending the pair back to levels seen around the lows of the intervention episode in late July and early August.

The move has been attributed to suspected MOF intervention, but also coincided with comments from New York Fed President John Williams and Governor Christopher Waller, who downplayed the case for a September hike. This contrasts with previous remarks by Chair Kevin Warsh at Jackson Hole, where he expressed dissatisfaction with inflation staying too high.

The correlation between USD/JPY and US yields has surged in recent sessions, with the pair now closely tied to outright Treasury yields. The five-day correlation with the US 2-year yield stands at 0.87, while the relationship with the US 10-year sits at an even stronger 0.99.

The upcoming August non-farm payrolls report looms as a significant binary risk event, which could potentially turn this bearish unwind into a big reversal if the data comes in materially stronger than expected.