Japan’s Ministry of Finance and the Bank of Japan have reportedly spent more than $60bn intervening in late April and early May, pushing USD/JPY away from 160.00 and down towards 156.00. The pair has since recovered steadily to around 159.50, erasing roughly 80% of that drop. The yield gap remains a dominant driver, with the Federal Reserve at 3.50% to 3.75% and the BoJ at 0.75%, leaving about 300 basis points of carry in favour of the Dollar. April’s Tokyo CPI data softened, as the core-core measure slowed to 1.9% YoY versus a 2.3% expectation, weighing on near-term rate-hike timing.
Technicals show USD/JPY back above the 50-period EMA near 158.50, while the 200 EMA sits close to 155.50; the daily Stoch RSI is rising without reaching overbought territory. The next catalysts are US core PCE at 12:30 GMT, expected at 0.3% MoM and 3.3% YoY, followed by Tokyo CPI at 23:30 GMT, with the headline ex-fresh-food forecast at 1.5% YoY. A move through 160.00 would refocus attention on Tokyo’s response, while a pullback could test 158.50.
Japan’s Intervention and Limited Impact
The Bank of Japan and Ministry of Finance bought themselves some time last month. Their combined effort, worth a reported ¥9 trillion, pushed USD/JPY from the sensitive 160.00 zone, but we are now back near 159.50. We see carry traders patiently rebuilding the same positions they were forced out of, as this is a familiar pattern.
The fundamental reason for this rebound hasn’t changed at all. With the Federal Reserve holding rates around 4.25% and the Bank of Japan barely above zero at 0.25%, the interest rate gap is enormous. Until that fundamental math shifts, any intervention from Tokyo only buys time, not a new direction for the yen.
Carry Trade Sentiment and Outlook
Governor Ueda is walking a familiar tightrope, and the rope is getting thinner. Recent economic data isn’t helping him, with the latest Tokyo core inflation for April 2026 coming in at a soft 1.8%, below expectations. This weak print makes it very difficult for him to follow through with the rate hikes needed to genuinely support the yen.
For us, this setup favors strategies that bet on the dollar’s strength against the yen. We are looking at buying USD/JPY call options with strike prices above the 160.00 level to position for a breakout. The main risk is another intervention, but as we saw in 2022 and again last month, these effects have proven temporary.
All eyes are on the upcoming inflation data in the next couple of weeks. The US Personal Consumption Expenditures (PCE) price index will be critical; the last reading for April 2026 was a sticky 2.7% year-over-year, keeping the Fed cautious. Another firm number would add fuel to the dollar’s rally and likely push us through the 160.00 barrier with force.
Therefore, we will treat any pullbacks toward the 158.00 level as buying opportunities. A decisive break above 160.00 signals the carry trade is back in full control, forcing Tokyo’s hand once more. Only a surprisingly weak US inflation print paired with a strong Japanese one could truly reverse this course.
