USD/JPY Surges on Hawkish Shift, Intervention Risk Revived

The USD/JPY currency pair posted its strongest weekly gain since October 2025, rising over five big figures from lows seen earlier this month.

This surge was largely driven by a hawkish shift in front-end US rates, with markets pricing in the risk of another three rate increases from the Federal Reserve by June next year. This saw two-year yields jump to 4.76%, providing a significant tailwind for the dollar.

A key correlation between USD/JPY and US two-year yields has snapped back into place, with the five-day link rising to +0.98, an extremely rare positive relationship going back decades. However, this shift in sentiment may also revive intervention risk, particularly given a suspected rate check by Japanese authorities near 158.

A prolonged holiday period in Japan and thin market conditions will further elevate the threat of renewed intervention activity early in the week. This is despite recent history suggesting intervention episodes tend to avoid Japanese holidays.