They haven’t even sold yet

JPY

The shortage of assets story continues as silver punches through $110 and gold takes out $5000. The rally in the JPY was mildly damaging to the Nikkei but considering the size of the move in FX, you could argue that Nikkei looks fine. The intriguing aspects of this USDJPY move:

1. Still no actual USD selling, but we’ve now covered exactly the standard move for USDJPY intervention. 152.86 / 153.65 is the 3.5%/4.0% standard move off the 159.23 high, and our low so far is 153.30. Pretty much perfect. I have covered this fact of the 3.5%/4.0% move a bunch of times in am/FX (i.e., this is not hindsight).
2. The price action is incredibly calm, and there are no bounces. This is strange to me because many fast money traders / spot traders would have gone short at 155.50/156.00 on the rate check news and yet there has been very little in the way of upside spikes or retracements. I suppose real money and macro hedge funds are TWAPping the whole way down as they attempt to exit the Takaichi fiscal blowup trade… Or… There is some kind of stealth intervention TWAP going through. This is much less likely.

I will say, though, that with this being such an obvious and epic trade setup for fast money/spot traders on Friday, USDJPY shorts are going to start to get nervous if we don’t see any follow-up from the authorities by tonight. It would seem odd for them to intervene way down here, but then again if they don’t, we’re going to be back at 158 pretty quick. USDJPY’s path over the next 48 hours is not at all obvious. There are massive real money USDJPY longs, and large fast money USDJPY shorts at this point. Shorts need a catalyst soon.

3. The Nikkei sold off, but didn’t panic. Impressive price action there. You can barely see it on the daily chart.

This all sets up for an interesting cat and mouse game as the 08FEB election looms. Takaichi is supposed to be a lock for the win and has the potential to secure an outright majority. But there have been a few wobbles of late around China/Japan and you never know what voters are going to do in this crazy era. If she secures an outright majority, it’s going to be a confusing trade as the market will want to sell JPY, but the government forces might suggest otherwise.

I find it particularly interesting that USDJPY has gone down the full intervention distance without any actual USD selling (presumably). There was a large cohort a few weeks ago that seemed to believe that intervention would not work this time because of the extreme fiscal/monetary policy mix. Those buyers should be excited to buy down here, but it’s a weird setup. Buying at 154 on intervention off 159 would honestly be much less scary than buying at 154 in this situation where they haven’t yet shown their hand. What if they actually intervene? Then you’re cooked.

For what it’s worth, if they intervene now, the old playbook says you should probably see a low in the 147.80/148.60 zone. But I would guess it would move a bit less given they have already told us they’re coming. So, if you’re short, the dream take profit level is 150.00. At that level, the risk/reward for tactical USDJPY shorts will be bad unless the move comes on the back of real news of a US/Japan agreement to strengthen the yen.

If you missed my late Friday email, please check that out for more on the current JPY story. I want to reiterate that it’s very unlikely we see a weak USD policy. It’s much more likely we see a strong JPY and KRW policy.

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Calendar

Owners of gamma should have plenty of opportunities to play Pong back and forth as we get some major earnings reports, big central bank meetings, three US bond auctions, corporate and real month end, and a bunch of other random stuff. Aussie CPI Tuesday should be strong and should take RBA hike pricing to 99%.

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Final Thoughts

1. The AUD call idea from Friday afternoon’s very rare pm/FX is working so far as we gapped higher on the open and then pretty much pinned against the resistance at 0.6940. The idea is predicated on a few things:
   • The US, Japan (and maybe Korea) targeting a weaker USD vs. stronger Asian currencies is good for AUD and any other Asian currency.
   • The RBA is the only orthodox central bank in G10 hiking rates. This is helpful for the currency as it will help ratify the exploding 10-year interest rate differential.
   • I believe tomorrow night’s CPI is much more likely to come in strong, not weak. With the strong labor market data of late, a strong CPI could lead the RBA to hike at its 03FEB meeting. That meeting is currently priced around 57/43 hike vs. no hike, so the CPI release is critical.

Given the importance of the 0.6940 level, it makes sense to sell 20% of the notional of the option just to have some insurance in case CPI is weak. So, I will do that. As always, the details are in the sidebar.

2. New from Francis Fukuyama

Have a great day and be sure to trust the evidence of your ears and eyes.

Hi. Welcome to this week’s report. The positioning has flipped hard as the Greenland dustup has reminded people that U.S. policy is always subject to random and senseless shocks. This has reignited the SELL AMERICA trade that was dormant for most of H2 2025. The USDJPY intervention story, while still in its early stages, has also turbocharged G10 currency momentum vs. the USD. GBP and AUD are most favored longs while the JPY will take a while to flip because it was the favorite short for ages. Some big 1.1900s in EURUSD for Friday.

The most common consonants in English (despite what Wheel of Fortune wants you to think) are TNSHR not RSTLN.

H is more common than L.

good luck ⇅ be nimble