Did the BOJ
Intervene? Rumors imply
Lifers it the bid

Twenty-five? Fifty?
Do they really want yen strength?
Can they live with that?

When looking at charts, as I frequently indicate, the timeline of the chart matters a great deal.  For instance, if we look at this 1-year chart with daily candles of USDJPY after the yen jumped 1.8% yesterday, it would be easy to conclude there was another bout of intervention.  After all, the price action certainly seems to indicate a virtual gap move lower, just like the other interventions that we have seen during the past year.

Source: tradingeconomics.com

However, if we look at the chart with much shorter time increments, for instance 15-minute candles, we see that while there was significant selling pressure all day yesterday, and actually from the night before, there are really no gaps on the way down.  This is indicative of a large sell order that is relatively price insensitive meeting a market that is on edge, but absent a clearer signal of intervention, a market that is still willing to make prices.

Source: tradingeconomics.com

As it happens, from what I understand the market rumor was that the GPIF was moving funds out of dollars, something that had been mooted several weeks ago after Japanese FinMin Katayama discussed it in a news conference, but there was no sign of the BOJ.  And, of course, this morning JPY (-0.5%), has reversed some of that move.  Remember, the BOJ meets in two weeks’ time and as I mentioned on Wednesday, while a 25bp rate hike seems to be baked in the cake, there is increasing talk of 50bps.  Right now, the market is not pricing 50bps, in fact they are at 21bps, so not quite a full hike.  If Ueda-san really wants the yen to strengthen, 50bps will do the trick as it would really hurt the massive JPY shorts that are still rampant.  (see below chart from cotsignal.com). 

Now, over the past month, that net short position, at least in the futures markets, has been reduced, but there are still many short positions in various forms OTC.  A 50bp hike would definitely hurt them and a move to, and possibly through, 150 would be viable then.

Of course, none of that even considers things like this morning’s NFP or next week’s CPI.  There is still plenty of fun to be had!

The other big story today
Is whether a rate hike's in play
If NFP's strong
One could come along
If weak, there will be a delay

Which takes us to the NFP release this morning.  here are the current median estimates by the economist community

Nonfarm Payrolls	56K
Private Payrolls	45K
Manufacturing Payrolls	5K
Unemployment Rate	4.1%
Average Hourly Earnings	0.3% (3.0% Y/Y)
Average Weekly Hours	34.3
Participation Rate	61.4%

Source: tradingeconomics.com

Now, ADP Employment was slightly weaker than expected on Wednesday at 38K, but again, this begs the question of how many jobs are necessary in the US economy to continue to maintain full employment and economic growth.  Remember, too, last month’s NFP was surprisingly weak at -23K.  If we were to see another zero to negative outcome, the Fed funds futures market would completely reverse its recent hawkishness, which moved from a ~35% probability of a hike before the Warsh Jackson Hole Speech to a ~65% probability afterwards, but has since drifted back to basically 50:50 after hearing Fed Governor Waller indicate he is a hold as long as data keeps pointing toward declining inflation.  Any weakness today, and especially in next Friday’s CPI reading will likely reverse that period of hawkishness.

At this point, a hike is still fully priced in by the end of this year, although if they hold now, it would be a surprise to see a move one week before the midterm elections.  Arguably, the biggest problem regarding inflation in the US right now is diesel fuel, which as you can see in the below chart has more than doubled in price since December.

Source: barchart.com

Diesel filters into the prices of virtually all goods as transportation for delivery costs rise, and the one thing we all know is that once a company raises prices because of a fuel surcharge, that surcharge never goes away, it is simply absorbed into the price at some point in the future.  In fact, this may well be the single most concerning issue regarding future inflation, at least until the military action in both Iran and Ukraine/Russia ends.  Of course, the Fed cannot print diesel, but do they really want to go down the route of demand destruction?  That is a tough call.  I guess we shall all learn more in two weeks’ time as the quiet period is beginning today.

Which takes us to market activity.  Yesterday’s strong US equity performance was followed by a mixed picture in Asia, although there was far more strength (Tokyo +1.3%, HK +1.7%, Korea +1.6%, India +0.5%, Taiwan +1.5%) than weakness (China -0.1%, Australia -0.2%, Malaysia -0.4%, Indonesia -0.5%) with the rest of the bloc stronger rather than weaker.  In Europe, though, markets are essentially unchanged this morning ahead of the NFP number and US futures are also little changed at this hour (6:55).

In the bond market, Treasury yields (-1bp) have stopped climbing for now although remain at the upper end of their recent range as you can see in the below tradingeconomics.com chart

European sovereign yields have edged higher by 1bp across the board this morning and JGB yields, perhaps on the alleged buying by GPIF which led to USD sales in the FX market yesterday, have slipped by -4bps.  That is, of course, exactly what FinMin Katayama wants to see.

In the commodity markets, oil (-1.0%) is trading just above $90/bbl as the escalation of fighting in the Gulf has not had many headlines lately, although I think it continues.  Many have made the point, though, it is the products that are the driver, so diesel, jet fuel and gasoline are what matter to both measured inflation and the national zeitgeist.  In the metals markets, this morning prices are very little changed although as you can see in the chart below, gold’s recent sharp decline has been reversed to the tune of about 50% of the move.

Source: tradingeconomics.com

And finally, the dollar, away from the yen, is also largely holding its breath for the NFP report this morning.  KRW (+0.45%) continues to be the big winner over the past several months as capital continues to flow into Korea and its tech industry and tech stocks.  But if we look at the DXY, it is trading just above 99.0 this morning and frankly, if we step back and take a longer-term view of the dollar, away from the histrionics that many pundits try to add, it hasn’t gone anywhere since April 2025 as you can see below.  You may recall the gnashing teeth describing the dollar’s 15% decline in the first six months of 2025 as being ‘unprecedented’, but one need only look at the chart below to see a larger decline in the second half of 2023.  That was much ado about nothing.  But since then, 99 +/- 3 cents has been home.

Source: tradingeconomics.com

And that’s all there is today.  We simply await the data before the next move.

I want to thank all of you who mentioned Marvel, he showed beautifully yesterday but we did not get picked for an award.  We have two big shows this weekend and then the Nationals are the first weekend of October. 

Good luck and good Labor Day weekend

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