The USD/JPY pair has returned to the 162 level after a sharp and significant decline last week. After hitting a 40-year high of 162.86, the price dropped by more than 250 points within a few hours in response to rumors of currency intervention. The situation was exacerbated by disappointing Nonfarm Payrolls (NFP) data, which weakened the U.S. dollar across the market.

Overall, the dynamics of USD/JPY have clearly demonstrated how sensitive the market remains to any signals about possible (hypothetical) intervention by Japanese authorities. Essentially, the market reacted not to the mere fact of intervention but to rumors that the central bank had abandoned the practice of verbal interventions (i.e., setting indicative "red lines"). According to Reuters sources, relevant officials have decided to bet on an element of surprise during periods of thin market activity (which coincided with the U.S. Independence Day holiday). Fears of "hidden," or more accurately, sudden interventions forced USD/JPY bulls to lock in profits.

The disappointing U.S. June labor market report further compounded pressure on USD/JPY buyers. Weaker-than-expected data reduced the likelihood of tighter monetary policy by the Federal Reserve in the second half of the year, leading to lower Treasury yields and a weaker dollar across the board.

However, at the beginning of the new week, the situation reversed almost completely. Buyers returned the pair above the 162.00 mark, recovering most of the prior losses. This indicates that the fundamental upward trend for USD/JPY remains intact, and the sharp emotional decline at the end of last week was seen by market participants as an opportunity to open long positions at more favorable prices.

The reasons for such a sharp recovery stem from several fundamental factors.

To start, there has been no official confirmation of currency intervention by Japanese authorities. Moreover, market participants are gradually concluding that the Ministry of Finance's actions can only temporarily alter exchange-rate dynamics and cannot eliminate the primary cause of the yen's weakness: the significant interest-rate differential between the U.S. and Japan. In this context, it suffices to recall the events of late April, when Japanese authorities did indeed intervene in the currency market. At that time, USD/JPY dropped by more than 500 points, collapsing from 160.70 to 155.05. However, by early May, the upward trend had fully recovered, and within a few weeks, buyers regained all incurred losses. Growth continued into June, bringing the pair close to the boundaries of the 163 level (the highest price level since December 1986).

The "July incident" should be viewed through the lens of spring events. When rumors of intervention went unconfirmed, the market recovered even faster: USD/JPY buyers needed only two trading sessions to completely close the "gap."

Regarding the influence of weak June NFP data, the situation should be viewed in the context of the Bank of Japan's monetary policy. Undoubtedly, the disappointing U.S. labor market report reduced the likelihood of a Fed rate hike in the second half of the year. However, it did not change the fundamental balance of power in the currency market. Even after revising market expectations, interest rates in the United States remain significantly higher than those in Japan, while the Bank of Japan remains cautious and prudent, maintaining a wait-and-see stance. As a result, a significant interest rate differential persists, continuing to stimulate carry-trade operations and supporting demand for the dollar against the yen.

This is why the market has shifted back to focusing on the dominant fundamental factor for USD/JPY—the yield difference between U.S. and Japanese government bonds. As long as this differential remains significant, any episodes of yen strengthening are likely to be viewed as opportunities to open long positions.

At the same time, it is premature to say that risks have completely disappeared. The "comeback" of the USD/JPY pair to the 162 level brings it closer to levels that Japanese authorities consider excessive. This raises the likelihood of new verbal warnings—both public and veiled—and does not rule out another currency intervention. Therefore, long positions in USD/JPY at this stage appear very risky, even despite the continuing fundamental advantage of the dollar.

In conclusion, the fundamental premises for the pair's further growth remain in place. However, intervention risks also persist. Therefore, at this stage, the most justified tactic appears to be a waiting strategy, anticipating another significant correction (provoked by actions or rhetoric from Japanese authorities) that would allow entry into long positions at more attractive and less risky levels.