USD/JPY flows: Spoofy action to become occupational hazard
Specific trigger for quick USD/JPY dip unclear as yet
But burst of short yen covering had been expected prior to US holiday
And spoofing is likely to become increasingly common - both MoF and market generated
We suggested in the outlook that we could see some short yen covering today just in case prior to the US holiday to avoid the risk of thin market intervention. There looks to have been a burst of just that as USD/JPY dropped off 1 ½ figures from the day’s highs in a quick burst. Whether there actually was any genuine rate-checking or not, or just a bit of 2+2 and chatter, is an open question.
It’s much more common in fact for the market to engage in a bit of spoofing all by itself - a burst of long liquidation, with interest on top, quickly and noisily to try and generate a bit of theatre and flush out more intraday stops.
With sources suggesting the MoF is switching to guerrilla tactics rather than jawboning and telegraphing, as is also commonly the case in intervention campaigns, we can expect a lot more noise, both MoF and market self-generated, in coming sessions.