CFD Trading Rate US Dollar vs Japanese Yen (USDJPY)

• USD/JPY could meet the immediate barrier around March’s high of 151.97 and the psychological level of 152.00.
• The lagging indicators suggest a confirmation of the bullish trend for the pair.
• The pair could test the support region around the major level of 151.50 and the nine-day EMA at 151.39.

USD/JPY exhibits sideways trading on Thursday, hovering around 151.70 during the European trading hours. The pair may encounter immediate resistance around the recent high of 151.95 marked on Wednesday, which aligns with March’s high of 151.97 and the psychological level of 152.00.

A breakthrough above this level could support further upward movement, potentially allowing the USD/JPY pair to explore the region around the major level of 152.50.

The technical analysis for the USD/JPY pair indicates a bullish momentum, with the 14-day Relative Strength Index (RSI) positioned above the 50 level.

Additionally, the Moving Average Convergence Divergence (MACD) indicator confirms the bullish trend, with the MACD line above the centerline and showing divergence above the signal line.

On the downside, the USD/JPY could find immediate support at a significant level of 151.50, followed by the nine-day Exponential Moving Average (EMA) at 151.39.

A breach below the latter level might exert downward pressure on the USD/JPY pair, potentially leading to a test of the psychological mark of 151.00 before reaching the 23.6% Fibonacci retracement level of 150.67.

USD/JPY: Daily Chart

• USD/JPY hovers near historic highs around 152.00 ahead of Fed Powell’s speech.
• The US ADP Employment report for March has indicated that private labor demand remains strong.
• Investors remain uncertain over Japan’s wage growth spiral.

The USD/JPY pair rebounds to historic highs of 152.00 in Wednesday’s early American session. The asset is expected to extend its upside by easing expectations that the Federal Reserve (Fed) will begin reducing interest rates from the June meeting.

Fed policymakers don’t see any urgency for rate cuts as labor market conditions are tight and the economic outlook is strong. On Tuesday, Cleveland Fed Bank President Loretta Mester said that the central bank sees more risk in cutting interest rates too early. Fed Mester added: “With labor markets and economic growth both being very solid, we do not need to take that risk”. At the same time, she sees three rate cuts as “reasonable” this year.

Meanwhile, the United States ADP reported upbeat employment data for March. The agency reported that private employers hired 184K new workers against expectations of 148K and the prior reading of 155K (revised up from 140K).

Going forward, investors will focus on Fed Chairman Jerome Powell's speech, which is expected at 16:10 GMT. Powell is expected to provide cues about when the central bank will pivot to rate cuts.

Meanwhile, the Japanese Yen is broadly weak as investors lack confidence that the Bank of Japan (BoJ) will tighten its policy sooner due to uncertainty over the wage growth spiral. Investors seem to have digested fears of Japan’s intervention in the FX domain to support the Japanese Yen.

• USD/JPY trades subdued with potential intervention by Japanese authorities.
• Technical analysis shows 152.00 as a crucial hurdle; overcoming this could target the 153.00 level for buyers.
• A break below the Tenkan-Sen could lead to losses below 150.00, with the Ichimoku Cloud providing additional key points for traders.

The USD/JPY remained capped at around 151.50 on Tuesday amid intervention threats from Japanese authorities. The close correlation between the US 10-year Treasury notes yield, and the major hasn’t influenced the pair’s price action, which has remained below the 152.00 mark.

USD/JPY Price Analysis: Technical outlook

The USD/JPY remains capped by the 152.00 figure, though technical support lies at the Tenkan-Sen at 151.12. If buyers reclaim 152.00, that will pave the way for resting the 153.00 figure. On the other hand, if sellers push the exchange rate below the Tenkan Sen, that will pave the way to 151.00.

Once surpassed, the next support emerges at the Senkou Span A at 10.17, followed by the Kijun-Sen at 149.23. Further weakness in the pair could send it toward the Senkou Span B at 148.93, well inside the Ichimoku Cloud (Kumo).

USD/JPY Price Action – Daily Chart

• USD/JPY’s next move depends on the actions of the Fed, according to a BofA strategist. 
• If the Fed cuts the USD/JPY could fall to 142; if not it could rally higher. 
• Intervention is like “leaning against the wind” if the Fed decides not to cut, the market will press higher. 

USD/JPY has been seesawing in a narrow range in the 151.000s over the last two weeks as threat of intervention from the Japanese authorities keeps bulls timid whilst stronger-than-expected US data keeps bears in check. 

The direction of USD/JPY’s next move has been the subject of much speculation but the factor that will be the most significant is the actions of the US Federal Reserve (Fed), according to Thanos Vamvakidis, Global Head of G-10 FX Strategy, Bank of America Merril Lynch (BofA). 

“To a large extent USD/JPY relies on the Fed. If the Fed does not cut rates it could go to 160.000, it does cut rates 142.000,” said Vamvakidis in an interview with Bloomberg News.  

If the Fed cuts rates in line with current expectations it will weigh on USD/JPY since it will reduce the advantage of keeping cash in US Dollars (USD) compared to Japanese Yen (JPY) from the point of view of the amount of interest that can be earned. 

Stronger-than-expected US data in recent weeks, however, has led some Fed policy makers to row back on promises to cut interest rates in the summer. Over the Easter weekend, Chairman Powell sounded more hawkish – meaning more in favor of keeping interest rates higher for longer – and the markets reacted by buying US Dollars. 

The probability of a first rate cut by the Fed in June has now fallen to just above 50% according to the CME FedWatch tool, from over 70% only a few weeks ago. At the start of the year the market was even pricing in a decent likelihood of a first rate cut in March. If the trend for “kicking the can” of interest rate cuts down the road continues, the timing of a first cut could get pushed back even further – to the autumn, winter or even next year.

BoJ out of the Picture 

The Bank of Japan (BoJ) on the other hand is unlikely to play a key role and Vamvakidis suggests it is unlikely the BoJ will rush to raise interest rates to combat rising inflation. Japan has the opposite economic problem to most of the rest of the world. 

“Japan is a completely different case – inflation there is a solution, not a problem. They are happy to see persistent inflation. It is above the target but not by much. And they have a long history of 30 years deflation.

“They will remain very cautious, leaning in the other direction compared to the other central banks,” said Vamavakidis. 

The Intervention Level

In March, Masato Kanda, Vice-Minister of Finance for International Affairs said the Yen had weakened beyond what market fundamentals warranted. He added that the Japanese Authorities would be ready to intervene if the Yen depreciated any further. From past experience of intervention, any level above 150.000 is considered a target for intervention. 

“I think 152 is a critical level at this point where we will expect intervention in a scenario where they do expect the Fed to start cutting this year. But if the market prices no cuts by the Fed this year they will realize the level is higher..” Said the Global Head of G-10 FX.”

Even if the authorities intervene, however, they won’t have the power to plug the levee forever, and it will eventually break, pushing USD/JPY higher.  

“It will be more like leaning against the wind. They know very well, also from the past, that these interventions don’t work, it is mainly a threat, so they can create some caution in the market, some two-way risk. 

“They know very well everything depends on the Fed. If they just buy some time with intervention until the Fed starts to cut rates it will be fine, but if the Fed does not cut this year then there is nothing these interventions can do.” Said Vamvakidis. 

• USD/JPY is modestly up, reflecting a cautious market amidst higher US Treasury yields and potential for Japanese intervention.
• Technical indicators suggest resistance at 152.00, with further targets at 153.00 and 155.00 should the major break higher.
• A move below the Tenkan-Sen could see USD/JPY testing support levels down to 148.93, amid ongoing market vigilance.

The USD/JPY remains subdued amid speculation of possible intervention by Japanese authorities. Although US Treasury yields pushed higher during Monday’s session, with the 10-year benchmark note rate rising 11 basis points, the pair stood shy of the day’s high of 151.77. At the time of writing, the major trades at 151.63, up 0.15%.

USD/JPY Price Analysis: Technical outlook

The USD/JPY daily chart depicts the pair consolidating around the 151.00/152.00 region, with intervention threats strengthening the 152.00 mark as a first resistance level. A breach of the latter will expose the 153.00 psychological figure, ahead of 155.00.

On the other hand, if the USD/JPY pulls back below the Tenkan-Sen at 151.12, that would send the pair sliding to the Senkou Span A at 150.17, followed by the Kijun-Sen at 149.22. Further downside is seen at the Senkou Span B at 148.93.

USD/JPY Price Action – Daily Chart\

• USD/JPY dips following February's Core PCE data, indicating a gradual cooling of inflation but concerns linger.
• Fed officials maintain a cautious outlook on rate cuts, awaiting further evidence of sustained disinflationary trends.
• Market awaits insights from Fed Chair Powell and other Fed speakers.

The USD/JPY posts  minuscule losses following the release of the US Core Personal Consumption Expenditure (PCE) price index, the US Federal Reserve’s preferred inflation gauge. Data came as expected with prices continuing to trend lower, though at a slower pace. The major trades at 151.25, down 0.09%.

USD/JPY reacts modestly to the latest US economic indicators

The US Bureau of Economic Analysis (BEA) revealed that the Core PCE was lower than expected in February, coming at 0.3% MoM, below the previous month’s data. Yearly data cooled from 2.9% to 2.8%, as estimated by the consensus. Headline inflation came at 0.3% below January’s forecasts, and in the 12 months to February, it was higher than the previous month at 2.5%, up from 2.4%.

Although the data relieves pressure on the Federal Reserve, policymakers continue to take a cautious stance. Other inflationary readings, such as the Consumer Price Index (CPI) and the Producer Price Index (PPI), show signs that inflation is becoming entrenched above the 3% threshold.

On Wednesday, Fed Governor Christopher Waller was hawkish, saying the US central bank is in no rush to cut rates. Later, San Francisco Fed President Mary Daly and Fed Chair Jerome Powell would cross newswires, with traders eyeing their comments.

Even though the disinflationary process is evolving, the labor market is re-tightening again, following four consecutive weeks of fewer Americans filing for unemployment benefits. That can increase spending, which consequently could push prices higher.

Wells Fargo analysts cited by Bloomberg noted “We really just haven’t seen that consumer fatigue that we were getting some hints of in the last month’s data, …. That’s going to make it really hard, I think, for businesses to hold the line on prices if consumers are still willing to splash out at these levels.”

USD/JPY Price Analysis: Technical outlook

The daily chart portras the pair consolidated at around the 151.15/151.60 area, unable to gather tration in eigher way, as Japanese authorities threatened to intervene in the markets. Nevertheless, if the USD/JPY pushes above 152.00, that an clear the path to challenge 153.00. On the flip side, buyers failure to hold prices above 152.00 and 151.00, could sponsor a leg down. The first support would be the Tenkan Sen at 150.49, followed by the Senkou Span A at 149.86.

• USD/JPY struggles as BoJ’s cautious approach to keep monetary conditions accommodative.
• Japanese CPI (YoY) rose 2.6% in March, from the previous reading of a 2.5% rise.
• The strength of the US Dollar is bolstered by hawkish statements from Fed officials.

USD/JPY remains calm and hovers around 151.40 during the early European hours on Friday. Tokyo Consumer Price Index (YoY) for March climbed 2.6% following a 2.5% rise in February. Meanwhile, the Core Tokyo CPI climbed 2.9% year-over-year, down from a 3.1% rise in February.

Japanese Finance Minister Shunichi Suzuki made remarks on Friday emphasizing the importance of stable currency movements aligned with economic fundamentals. He expressed concern about rapid fluctuations in foreign exchange (FX) markets, attributing speculative activity to these movements. Suzuki stated that authorities are closely monitoring FX developments with a strong sense of urgency and are prepared to take necessary measures to address disorderly FX movements.

Japanese Prime Minister Fumio Kishida remarked on Thursday that it was fitting for the central bank to "maintain accommodative monetary conditions." Kishida also emphasized that the government would persist in collaborating with the Bank of Japan (BoJ) to facilitate wage increases and steer the economy away from deflation. The Japanese Yen (JPY) likely faced challenges due to the Bank of Japan's cautious approach to maintaining accommodative monetary conditions, thereby supporting the USD/JPY pair.

The US Dollar Index (DXY) strengthens, nearing 104.60, as recent data indicates annualized economic expansion in the United States (US), driven by consumer spending. In the fourth quarter of 2023, the US Gross Domestic Product (GDP) Annualized expanded by 3.4%, surpassing market expectations of remaining unchanged at a 3.2% increase. The US Gross Domestic Product Price Index remained steady with a 1.7% increase, in line with expectations for Q4.

The hawkish statements from a Federal Reserve (Fed) official, reinforced the Greenback. Fed Governor Christopher Waller's comments on Wednesday hinted at a potential delay in interest rate cuts, given the strong inflation figures.

• USD/JPY trades on a stronger note around the mid-151.00s on Friday. 
• Japan’s Kishida said it was appropriate for the BoJ to maintain easy monetary policy. 
• Fed’s Waller stated there is no rush to cut rate and need to maintain it for longer than expected

The USD/JPY pair holds positive ground for the second consecutive day near 151.45 on Friday during the early Asian trading hours. The cautious approach from the Bank of Japan (BoJ) to keep monetary conditions accommodative exerts some selling pressure on the Japanese Yen (JPY). Additionally, the hawkish comments from the Federal Reserve (Fed) officials provide some support to the US Dollar (USD) and USD/JPY. 

Data released from the Statistics Bureau of Japan reported that the headline Tokyo Consumer Price Index (CPI) for March climbed 2.6% YoY following a 2.6% rise in February. Meanwhile, the Tokyo CPI ex Fresh Food, Energy climbed 2.9% YoY, down from a 3.1% rise in February. However, the JPY remains on the defensive following the Japanese inflation data and the dovish comments from the Japanese authorities. 

On Thursday, Japanese Prime Minister Fumio Kishida said that it was appropriate for the central bank to “maintain accommodative monetary conditions.” Kishida further stated that the government will continue to work closely with the BoJ to ensure wages continue to rise and the economy exits from deflation. 

Nonetheless, the potential intervention from the Japanese authorities might cap the weakening of the JPY. Japan finance minister Shunichi Suzuki came in some verbal intervention on Friday, saying that he will closely watch the foreign exchange moves with a high sense of urgency and will not rule out any actions to respond to disorderly the FX moves.

On the USD’s front, stronger US economic data and the high-for-longer rate narrative from the Fed lift the Greenback against its rivals. The Fed Governor Christopher Waller, the most outspoken policy hawk, said on Thursday that the central bank is in no rush to cut the benchmark rate and may need to “maintain the current rate target for longer than expected.” Waller added that they need to see more inflation progress before supporting rate cuts.

Next week, Japan’s Tankan Large Manufacturing Index for the first quarter (Q1), along with the US ISM Purchasing Managers Index (PMI) report, will be due. The US Nonfarm Payrolls (NFP) for March on April 5 will be a closely watched event. 

• USD/JPY hovers at 151.28, with traders wary of potential Japanese market intervention to support the Yen.
• US Q4 GDP growth surpasses expectations at 3.4%, while jobless claims and consumer sentiment indicate a robust economy.
• Fed Governor Waller's hawkish stance underscores the need for sustained inflation progress, influencing rate cut expectations.

The USD/JPY remains subdued during the North American session, trading at 151.28, almost flat, amid renewed fears of Japan’s intervening in the markets to cap the Japanese Yen (JPY) weakness.

USD/JPY trades cautiously with US economic growth and job data in focus, alongside Japan's intervention warnings

Market sentiment is mixed amid thin liquidity trading as the year's first quarter ends. US economic data revealed the country grew 3.4% in the last quarter of 2023, exceeding the preliminary reading of 3.2%, according to the Bureau of Economic Analysis.  In the meantime, inflation measures on a quarterly basis hit the Federal Reserve’s (Fed) objective of 2%,

Other data showed that Initial Jobless Claims for the week ending March 23 were below market expectations of a 215K increase and came to 210K, lower than the previous week. The data shows that the labor market remains tight, which could deter the Fed from cutting rates.

At the same time, the University of Michigan Consumer Sentiment index rose to its highest level since July 2021, climbing to 79.4, exceeding estimates of 76.5. Pending Home Sales recovered in February, increasing 1.6% MoM after plunging -4.7% in January and above the consensus of 1.5%.

On Wednesday, the Fed’s Governor Christopher Waller delivered hawkish remarks. He said that rates need to be higher for longer than expected and that more inflation progress is needed before supporting a rate cut. He sees the beginning of the easing cycle in 2024, though he suggests that back-to-back months of inflation data heading to 2% are needed.

On the Japanese front, the Bank of Japan Summary of Opinions revealed that members said that Yield Curve Control, negative interest rates, and other measures of stimulus accomplished their roles.  Meanwhile, Japanese authorities' verbal intervention deterred traders from opening fresh long bets in the USD/JPY pair as intervention threats loom.

USD/JPY Price Analysis: Technical outlook

The daily chart suggests the USD/JPY has peaked at around the 151.20/151.90 area, although the bullish bias remains. A clear break above 152.00, could pave the way for challenging 153.00. On the other hand, a pullback is seen if sellers push the exchange rate below 151.00, with the Tenkan/Sen seen as first support at 150.44, followed by 150.00 and the Senkou Span A at 149.84.

• USD/JPY trades back and forth above 151.00 ahead of the Fed’s preferred inflation gauge.
• Risk-perceived currencies are facing the heat of uncertainty ahead of the US core PCE for February.
• Investors need more clarity about BoJ’s intervention to support the Japanese Yen.

The USD/JPY pair trades sideways in a narrow range around 151.30 in the London session on Thursday. The asset is expected to remain stuck in a tight range as investors are expected to build fresh positions after getting more clarity on the Bank of Japan’s stealth intervention plans in the FX domain to support weakening Japanese Yen. Also, the United States core Personal Consumption Expenditure Price Index (CPE) data, which will be published on Friday, is expected to keep investors on the sidelines.

The annual inflation gauge is expected to have grown at a steady pace of 2.8%. The monthly underlying inflation data is forecasted to have increased slowly by 0.3% from January’s reading of 0.4%. Investors will keenly focus on the inflation data to gauge when the Federal Reserve (Fed) may begin trimming interest rates.

An asset-specific action is observed in global markets as risk-sensitive currencies have been hit hard amid uncertainty ahead of US core PCE for February. While S&P 500 futures are unchanged. The US Dollar Index (DXY) refreshes six-week high at 104.72. 10-year US Treasury yields have rebounded to 4.23%.

The US Dollar strengthens as Fed Governor Christopher Waller’s commentary on the interest guidance negatively impacts Fed expectations for rate cuts in the June meeting. Fed Waller said there is no need to rush for policy rate cuts due to sticky price pressures and a strong economic outlook. Waller added, “Further progress expected on lowering inflation "will make it appropriate" for the Fed to begin reducing the target range for the federal funds rate this year," reported Reuters.

The expectations for BoJ’s intervention in the FX domain have increased as investors lack confidence that Japan’s central bank will not be able to move forward with positive interest rates due to an uncertain wage growth outlook. However, the summary of opinions at the BoJ's March meeting, released on Thursday, showed that many policymakers saw the need to go slow in phasing out ultra-loose monetary policy, Reuters reported.

Speculation over Japanese FX intervention remains high. Economists at ING analyze the USD/JPY outlook after the pair touched a multi-decade high near 152.00 on Wednesday.

Higher US rates and low volatility weigh

USD/JPY is trading sideways near 151.35. Economists at Société Générale analyze the pair’s outlook.

150.20 is first support

The Japanese Yen (JPY) continues to languish. Economists at Scotiabank analyze USD/JPY outlook.

A rapid move higher in the JPY is possible

• USD/JPY drops from 152.00 as expectations for BoJ’s intervention deepen.
• The Japanese Yen remains weak despite BoJ exiting negative interest rates.
• The US Dollar exhibits strength ahead of the US core PCE Inflation data.

The USD/JPY pair finds intense selling pressure near historic highs of 152.00 in Wednesday’s late American session. The asset falls sharply after Japan’s Finance Ministry reported that The Bank of Japan, Ministry of Finance (MoF) and Financial Services Agency (FSA) are scheduled to hold a tri-party meeting.

This has deepened hopes of a stealth intervention by Japanese authorities into the FX domain to limit further downside in the Japanese Yen. Also, commentary from top currency diplomat Masato Kanda that he "won't rule out any steps to respond to disorderly FX moves" has reinforced expectations of Japan’s intervention against excessive currency moves.

The Japanese Yen has faced significant pressure in the last few trading sessions despite the BoJ exiting negative interest rates. It appears that investors are less confident about the BoJ’s move to policy normalization due to the absence of evidence about a wage growth spiral. Apart from that, investors hope that the BoJ’s move to further policy normalization will be very slow.

Meanwhile, the US Dollar is upbeat ahead of the United States core Personal Consumption Expenditure Price Index (PCE) data for February, which will be published on Good Friday. Trading volume is expected to remain low in that session as US equity and bond markets will remain closed.

The annual core PCE inflation is estimated to have grown steadily by 2.8%, with monthly growth declining to 0.3% from 0.4% in January. The US Dollar Index (DXY) is far from recapturing the monthly high of 104.50.

• USD/JPY could be forming a bearish Key Reversal Day. 
• A bearish close on Wednesday will validate the one-day pattern. 
• It often signifies major peaks and occurred at the highs of the stock market in 2007 prior to the crisis. 

USD/JPY is trading back in the lower 151.000s on Wednesday after rising up to a new high of 151.970 during the Asian session, its highest level for decades. 

The rapid reversal has been put down to intervention by the Japanese authorities who do not wish to see the Japanese Yen (JPY) depreciate any further. 

Such a strong reversal over the course of one day has a special term in technical analysis – it is called a “Key Reversal Day”. 

Key Reversal Days are a sign a major reversal in price is on the horizon. It is defined as a day in which price rises up to a new long-term high before rolling over and closing below the low of the previous day (rectangled). The sudden shift in sentiment is indicative of a sea-change in the fundamental outlook for the asset’s price.  

US Dollar versus Japanese Yen: Daily chart

If USD/JPY can maintain its current losses until the end of the day on Wednesday, it will have achieved a Key Reversal Day and may be in line for more losses to come. If it fails to close below Tuesday’s lows at 151.207 it will fail to meet the criteria for a key reversal. 

A Key Reversal happened on the S&P 500 index on October 11, 2007 at the peak of the stock market rally just prior to the Great Financial Crisis. 

It marked the peak price the S&P 500 achieved before the bear market that followed the banking crisis. 

S&P500: Daily chart 

Although this subtle though important clue of future weakness largely went unnoticed by most investors, a few technical analysts brought it to attention at the time!

The most notable moves in G10 since the start of the week have been the further sell-off in G10 low-yielders: Swiss Franc (CHF) and Japanese Yen (JPY). Economists at ING analyze CHF and JPY outlook.

Japanese authorities look at the rate of change more than levels

USD/JPY rallied briefly to a fresh high at 151.97. Economists at BBH analyze the pair’s outlook.

It is only a matter of time before USD/JPY breaks higher 

• USD/JPY is trapped in a range with neither bulls or bears willing to commit. 
• Fear of intervention prevents upside and the potential for US Dollar strength downside. 
• Most institutional investors sees USD/JPY falling eventually once rates narrow. 

USD/JPY is trading in the 151.300s on Tuesday, little changed from the previous session as it enters a stalemate zone below multi-year highs. 

The pair is trapped in a narrow consolidation as both sides of the trade suffer from paralysis. 

Bulls are paralyzed by the fear of intervention from the Japanese authorities and bears by the potential for the US Dollar (USD) to excel given the above-average performance of the US economy, as well as fading hopes of an early interest-rate cut by the Federal Reserve (Fed).

USD/JPY to weaken in the long-term

Institutional analysts are generally bearish about USD/JPY in the medium-to-long run. They mostly view interest-rate cuts by the Fed as inevitable – a question of when not whether. There is also an increasing consensus that there will be more interest-rate hikes from the Bank of Japan (BoJ). 

According to a Bloomberg survey of economists, the majority believe the BoJ will raise interest rates again in October, if not before. 

In contrast the Fed is expected to cut as soon as June, with a probability of 69.9% rates will come down in that month, according to the CME FedWatch tool. 

“We think the US-Japan yield differential is set to narrow, this, among other factors, should provide support for the JPY,” say economists at HSBC. 

The Yen is destined to rise across the board, in fact, as global inflation comes down and central bank easing gains momentum, according to analysts at MUFG. 

"When global yields do start to move lower, the stance of the BoJ will certainly reinforce the scale of yen appreciation,” they say in a recent note. 

The yen could fall to the 140.000 level once the reversal gets underway and the yield spread between the US and Japan narrows. 

“​​We still see scope for USD/JPY to drop to at least 140.00 by year-end with risks of a move to the mid-130.00’s,” adds MUFG. 

ING are not as convinced USD/JPY will go lower arguing such a move would be dependent on the US Federal Reserve cutting interest rates, something still not guaranteed.

“A recovery in JPY remains even more strictly tied to US rates breaking lower."

Yenccentric move 

Many were taken off guard by the Yen’s counter-intuitive move following the BoJ’s March meeting. For the first time since 2007 the bank decided to raise interest rates. Normally this would be expected to strengthen a currency substantially, especially after such a long delay. Yet in the case of the Yen, the opposite was true. 

Some put it down to the move being too widely telegraphed prior to the meeting, causing a “buy the rumor sell the fact” trade, whilst others suggested the Yen fell because the rate hike was a case of a “one and done”. 

Japan’s FX chief Masato Kanda put the Yen’s eccentric devaluation down to speculators playing a contrarian trade to make a quick killing. Indeed, data from the Commodity Futures Trading Commision (CFTC) shows large speculators such as hedge funds loading up their short bets on the Yen in the week of the BoJ decision. 

Eventually, the explanation that seems the most reasonable is that despite the rise in Japanese interest rates from negative 0.1% to a range between 0.0% and plus 0.1%, they remain extremely low in comparison to other countries. This means the Yen still “remains the most popular funding currency for carry trades,” according to FX strategists at ING. 

The carry trade is an operation by which traders borrow in a “funding currency” such as the Yen, to buy a currency with a higher interest rate, such as the New Zealand Dollar (5.5%) or US Dollar (5.5%).The profit lies in the difference between the cost of the  interest repayments and the interest earned at the higher rate – assuming a constant exchange rate. 

• USD/JPY trades without conviction around 151.50.
• Fears of FX intervention remain well in place.
• Higher US yields limit the downside bias in the pair.

USD/JPY navigates in the upper end of the recent range north of the 151.00 mark amidst some renewed weakness in the Greenback and rising US yields.

USD/JPY: Upside appears capped by 152.00

The pair trades in an irresolute tone at the beginning of the week on the back of the resurgence of the downward bias in the US Dollar and in a context of prevailing appetite for the risk-linked galaxy.

In addition, US yields manage to regain some balance following many sessions of losses, while JGB 10-year yieds print humble gains near 0.75%.

In the meantime, as the pair gets closer to the 152.00 hurdle, fears of FX intervention by the BoJ and/or the government appear to limit the upsit potential in spot. On this, according to Vice Finance Minister for International Affairs, Kanda, the recent depreciation of the Japanese yen is not aligned with the underlying economic fundamentals and appears to be driven by speculative activities. Kanda issued a stern warning, stating, "We are prepared to intervene to address excessive fluctuations, with all options on the table."

On the domestic calendar, the BoJ published its Minutes of its March 19 gathering, noting that the central bank is gradually moving towards a phase of tightening, as board members recognize the potential for adjusting monetary policy and acknowledge the probability of maintaining accommodative financial conditions, even as measures like ending negative interest rate policy are implemented.

USD/JPY: Key levels to watch

So far, USD/JPY is up 0.06% at 151.40 and faces the next resistance at the 2024 peak of 151.86 (March 22) ahead of the 2023 high of 151.90 (November 13) and the 2022 top of 151.94 (October 21. In case bears regain the upper hand, the initial support level is set at March's low of 146.47 (March 8), which is reinforced by the proximity of the key 200-day SMA (146.68). If the pair clears the latter, it could extend the drop to the February low of 145.89 (February 1) seconded by the December 2023 low of 140.24 (December 28).