The USD/JPY pair faces intense selling pressure below the 157.00 mark early Friday. The Japanese yen gains traction even as risk flows return in European trading, maintaining the downside momentum driven by a weakened US dollar. The pair awaits fresh catalysts, though recent developments have kept traders on alert for potential further interventions by Japanese authorities.

The Japanese yen had strengthened against the US dollar following suspected intervention by Japanese authorities, which drove the USD/JPY pair to a one-month low of 155.36. Reuters, citing Kyodo News, reported that Japan’s top currency diplomat Masato Kanda stated on Wednesday that he would have to respond if speculators caused “excessive” moves in the currency market, and noted there was no limit to how often authorities could intervene.

Meanwhile, the US dollar finds some support from a slight improvement in US Treasury yields. However, the upside for the greenback may be capped due to the high likelihood of a rate cut by the Federal Reserve (Fed) in its September policy meeting. Fed Governor Christopher Waller mentioned on Wednesday that the US central bank is ‘getting closer’ to an interest rate cut. Additionally, Richmond Fed President Thomas Barkin remarked that easing inflation had begun to broaden, and he would like to see this trend continue, as reported by Reuters.

According to CME Group’s FedWatch Tool, markets now indicate a 93.5% probability of a 25-basis point rate cut at the September Fed meeting, up from 69.7% a week earlier. This growing expectation of a Fed rate cut further supports the JPY against the USD.

Trade Idea:

Consider short positions on USD/JPY around the 157.00 level, targeting 155.00, given the strong possibility of Japanese intervention and heightened expectations of a Fed rate cut in September. Monitor statements from Japanese authorities and US economic indicators for further direction.