There's no doubt among most Tokyo traders that Japan's Ministry of Finance (MOF) ordered a fresh round of FX intervention following the U.S. consumer price report on Thursday. The big question now is whether there will be follow-up action if the effects of the latest moves prove short-lived. USD/JPY fell from 161.76 in late Asia and 161.6 0after the U.S. CPI release to a low of 157.40. Intervention by Japanese authorities was likely significant, with EBS volumes estimated at $40 billion in the hours after the weak CPI release—five times the average daily volume. Another possible round of intervention may have taken place early in Tokyo on Friday, with USD/JPY dropping sharply from a retracement high of 159.45 to 157.75. While this might have been due to nervous USD/JPY longs, the three-big-figure move cannot be ignored.

MOF currency chief Masato Kanda did not confirm the intervention but noted that recent FX moves were not in line with fundamentals. U.S. interest rates have recently fallen, while Japanese government bond yields have risen to levels not seen since July 2011. Kanda also highlighted that the recent rapid rise in USD/JPY was driven by speculation, affecting households. USD/JPY rose from a low of 140.27 on December 28 and from 151.85 after the last round of intervention at the end of April to 161.90. On Friday, USD/JPY based around its 50-day moving average at 157.52 before bouncing back to the 159.00 handle due to Japanese importer and NISA-related bids. With such flows likely to continue, more FX action may be necessary if USD/JPY heads higher again, threatening more Japanese importer option barriers from 162.00.

In early Asia, USD/JPY fell to 157.74 before bouncing back to the 159 handle. After a possible second round of FX intervention, the market is pondering whether MOF's action is over or if more is to come, with the 160.00 level being closely watched. Japanese officials have made it clear that the recent moves were rapid and not based on fundamentals. The push to lows in early Asia saw Japanese importers and investors buy anew, with potential to push USD/JPY up again and defy the MOF's initiative. Technical support is also present from the 55-DMA area at 157.57 and the hourly kijun at 159.58.

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