Japanese Yen threatens a breakout as volatility dries up

• Japanese Yen continues coiling in a right-angled triangle, threatening to breakout. 
• Dovish comments from BoJ’s governor Ueda propelled USD/JPY’s last push higher. 
• There is a growing chance of intervention from Japanese authorities as key price and yield levels are near. 

The Japanese Yen (JPY) makes minor gains against the US Dollar (USD) on Tuesday, with the USD/JPY recovering from a weak start to return to familiar territory just below the key 150 level. The trend is up and biased to extend with the threat of a breakout from a right-angled triangle providing a bullish technical clue.

Comments from Bank of Japan (BoJ) governor Katsuo Ueda fueled USD/JPY’s last bullish impulse. The BoJ governor said on Friday that the bank would be maintaining its current accommodative approach in response to figures showing a slowdown in inflation. 

Daily digest market movers: Japanese Yen news and market movers 

• The Japanese Yen continues weakening versus USD after comments from BoJ Governor Kazuo Ueda on Friday, in which he reiterated that the BoJ would be “patiently maintaining current easy policy.”
• This came after the release of Japanese inflation data for September revealed a slowdown in price rises. 
• The National Consumer Price Index rate fell to 3.0% from 3.2% a year ago. National CPI ex-Fresh Food inflation fell to 2.8% from 3.2% year-on-year (YoY). Whilst still above analysts’ estimates of 2.7%, it was the first time since August 2022 that the index growth had fallen below 3.0%. National CPI ex Food and Energy rate fell to 4.2% from 4.3% YoY. 
• The yield on the 10-year Japanese Government Bond (JGB) has risen 0.18% to trade at 0.854% at the time of writing. The YCC threshold lies at 1.0%, which if touched will likely lead to the BoJ implementing further easing to bring it down. This would also probably push the Yen even lower. 
• Complicating matters further, the USD/JPY briefly rose above the key 150 threshold on Monday. This is the level where the Japanese Ministry of Finance (MoF) has historically intervened in markets to strengthen the Yen so that imports do not become unaffordably expensive.
• Due to the market’s view that the MoF usually intervenes to defend 150, it could lead to selling pressure as the idea becomes a “self-fulfilling prophecy,” according to analysts at Commerzbank. 
• “The market assumption that 150 constitutes the MOF’s line of defense can turn into a self-fulfilling prophecy,” Commerzbank said in its note.
• A decisive break above 150, however, could lead to a strong move substantially higher. The breaking of the level on Monday  “constitutes a sign that the exchange rate fundamentally justified from the market’s point of view is much higher than 150,” said Commerzbank.
• The Japanese authorities are in Catch-22 as pressure to maintain the YCC threshold is likely to lead to a weaker Yen, whilst at the same time, maintaining the 150 threshold, will require the opposite – a stronger Yen.  
• US Dollar dynamics will also influence the pair, including the release of data in the week ahead. The Fed’s preferred measure of inflation (PCE price index) will carry the most significance when it is published on Thursday, October 27, along with Michigan Consumer Confidence. US Durable Goods Orders and GDP, out on Friday, October 28, may also impact the USD.

Japanese Yen technical analysis: Right-hand triangle in an uptrend 

USD/JPY is in an overall uptrend, rising on long-term, intermediate, and short-term bases. 

It is expected to continue this trend higher, with the next major target at the 152.00 highs achieved in October 2022.  

The pair is completing what appears to be an ascending triangle on the daily chart and a decisive break above the 150.16 highs of October 3 would provide confirmation of a breakout  – also with a target in or around the 152s.  

US Dollar vs Japanese Yen: Daily Chart

In technical terms, a ‘decisive break’ consists of a long green daily candlestick that pierces cleanly above the critical level in question and then closes near to the high of the day. It can also mean three up days in a row that break cleanly above the level, with the final day closing near its high. 

Triangles are sometimes the penultimate formations in a trend, suggesting the current uptrend may be nearing its culmination point.