USD/JPY Outlook Clouded by Intervention Risk Amid Strong US Growth

USD/JPY's outlook remains dominated by US growth and hawkish Fed pricing, despite intervention risk increasing at lower levels. The pair has been supported by strong US economic data, with GDPNow forecasting a seasonally adjusted annualised growth pace of over 5% in the third quarter.

The front-end rates continue to be the dominant fundamental driver for USD/JPY, as seen in the correlation matrix. However, intervention risk is building around 158, with recent behaviour suggesting that this level may no longer be the line in the sand for Japanese policymakers.

Friday's US payrolls report could challenge hawkish Fed pricing and shift market expectations. The report card on the US labour market will also provide insight into whether it is enough to skew the committee's reaction function more symmetrically towards both sides of its mandate.