USD/JPY steadies around 149.00 after rollercoaster moves on alleged Japan intervention

• USD/JPY remains sidelined after reversing early Asian session loss.
• Chatters over Tokyo’s meddling triggered initial slump before sour sentiment, hawkish Fed bets recalled buyers.
• US 10-year Treasury yields extend Friday’s pullback from 14-year high, stock futures, Asia-Pacific stocks trade mixed.
• PMIs, US GDP could entertain buyers but major attention will be given to Fed bets, policymakers’ intervention.

USD/JPY treads water around 148.85 following a volatile start to the week which initially refreshed a fortnight low before recalling the buyers ahead of Monday’s European session. That said, the pair’s earlier slump could be linked to the alleged Japan intervention while challenges to sentiment could have favored the pair buyers afterward.

The yen pair slumped nearly 220 pips during the initial Asian session and there’s no clue in the market, which in turn suggests the Japanese intervention to defend the currency after it rallied to the highest levels since 1990. However, most of the policymakers from Tokyo, including top currency diplomat Masato Kanda, Finance Minister Sunichi Suzuki and Chief Cabinet Secretary Hirokazu Matsuno, resisted confirming the same. Hence, the pair took clues from risk catalysts and quickly bounced towards regaining 149.00, up 0.75% intraday by the press time.

Other than the Japanese policymakers’ resistance to accepting the market meddling, fears emanating from Korea, China and Russia also propel the US dollar’s safe-haven demand and the USD/JPY prices. That said, the news that both North and South Korea have exchanged warning shots near their disputed western sea boundary, published on Monday, also seemed to have favored the US dollar buyers of late. On the same line could be the fears that China President Xi Jinping won’t hesitate to escalate geopolitical matters with the US when it comes to Taiwan. The reason could be linked to Jinping’s dominating performance at the annual Communist Party Congress after winning the third term in a row. Additionally, ABC News quoted Ukrainian General Oleksandr Syrskiy citing fears of Nuclear war.

Furthermore, news that China announced covid lockdown in the factory hub Guangzhou and the latest jump in the market’s bets over the Fed’s 75 bps move in November, from 88% to 95%, also seemed to have fuelled the USD/JPY prices.

While tracing the risk catalysts, the USD/JPY pair paid a little heed to the US Treasury yields as the benchmark 10-year coupons extend Friday’s pullback from the 32-year high to 4.15%, down six basis points at the latest.

It should be noted that the US equities posted the largest weekly gains in four months by the end of Friday but S&P 500 Futures struggle for clear directions of late.

The reason could be linked to the market’s expectations of easy Fed rate hikes after December. In his latest speech, St. Louis Fed President James Bullard said, “I want rates that put significant downward pressure on inflation.” On the same line, Chicago Fed President Charles Evans stated that they will need to raise rates further and hold them for a while. However, Nick Timiraos, Chief Economics Correspondent at The Wall Street Journal (WSJ) wrote that the Federal Reserve officials are barreling toward another interest-rate rise of 75 bps at their meeting in November and are likely to debate then whether and how to signal plans to approve a smaller increase in December.

Moving, preliminary readings for the US PMIs for October, scheduled for today, as well as the US Gross Domestic Product for the third quarter (Q3), up for publishing on Thursday, will be important to watch for short-term directions. However, the divergence between the Bank of Japan (BOJ) and the Fed will be crucial for the USD/JPY pair traders to follow for a clear understanding.

Technical analysis

Unless providing a daily closing below a four-month-old support line, around 146.20 by the press time, USD/JPY buyers remain hopeful of refreshing the multi-year high above 150.00.