USD/JPY Unwind Accelerates Amid Suspected Intervention and Dovish Fed Remarks
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 price action in USD/JPY has re-established a tight positive relationship with outright Treasury yields, with a five-day correlation with the US 2-year yield rising to 0.87 and the relationship with the US 10-year sitting at an even stronger 0.99.
New York Fed President John Williams said the case for a September hike 'isn't yet firm,' while influential Governor Christopher Waller stated he would support keeping rates unchanged in September if August inflation data out next week continued to cool.
The suspected intervention has left room for additional intervention on Friday without breaching IMF's classification framework, which states that a currency can retain its free-floating status provided intervention is exceptional and limited to no more than three instances over the previous six months.