Forewarned is forearmed. But this time, Tokyo appears to have decided to forgo warnings. The yen strengthened sharply against the US dollar amid speculation that the currency's continued weakness could provoke a new round of interventions. The timing was not accidental: traders are awaiting US employment data, and the holiday in the United States the following day promises thin liquidity. It is precisely in such periods that big money can push USD/JPY down more sharply than usual.

According to Reuters, Japanese officials may abandon their usual practice of telegraphing their intentions. April's intervention came after a flurry of warnings, and the market was prepared for it. The agency believes the new tactic of giving no verbal signals may be more effective at forcing speculators out of their yen shorts.

The restraint shown by Deputy Finance Minister Atsushi Mimura is evidence of this. The official has stepped back from the standard formula about being prepared to take bold action. Silence can be interpreted in two ways: either Tokyo will use the element of surprise ahead of a new intervention, or the authorities are prepared to let the yen fall further before acting. Mimura did confirm that the April market move was "clearly deliberate" and that Washington raised no objections.

Interestingly, USD/JPY bears have a hidden ace. Sustained business activity in Japan and the risk of inflation running above target give the BoJ grounds to consider aggressive rate hikes. Whereas markets previously expected roughly six months between moves with a December reference point, they now put the odds of monetary tightening in October at above 60%.

USD/JPY dynamics and the interest-rate differential

The problem is that monetary logic runs up against politics. Prime Minister Sanae Takaichi has signaled she prefers an accommodative policy to monetary tightening. It was precisely speculation about the government resisting BoJ tightening that pushed the yen to its weakest level since 1986. Against expectations of further Fed rate hikes, some traders are seriously discussing USD/JPY moving to the 200 level.

Bank forecasts vary but are grim for the yen. T. Rowe Price cites 169 as a worst-case scenario, Mizuho Bank marks 170, and Sumitomo Mitsui Financial Group allows for 180 in the coming years. Monex Group and Blue Edge Advisors do not rule out 200 if the BoJ continues to lag the curve.

Thus, the fate of USD/JPY depends on who blinks first: Tokyo, willing to spend reserves, or the Bank of Japan, intent on forcing through monetary tightening even under government pressure. Can the Finance Ministry outplay speculators with their own weapon — silence?

Technically, on the daily chart, the pin-bar that formed at the top of the uptrend in USD/JPY has been played out. A break of its low at 162.2 allowed shorts to be established. It makes sense to add to them if the instrument secures a hold below 161.5.