USD/JPY finds highest bids since suspected ‘Yentervention’ declines, breaks above 156.00

• USD/JPY continues to grind higher as markets eat away at “Yentervention” declines.
• US inflation figures to dominate the trading week.
• Markets still hope for two rate cuts in 2024 despite inflation outlook.

USD/JPY broke above the 156.00 handle on Monday as markets continue to chew through Japanese Yen (JPY) gains following a pair of suspected “Yenterventions” from the Bank of Japan (BoJ) at the end of April and beginning of May. The BoJ has remained tight-lipped on the matter, refusing to officially confirm or deny direct intervention in global markets on behalf of the Yen. Still, BoJ financial operations reported overspending on forecast expenditures by around nine billion Yen the same week the JPY recovered 4.5% against the US Dollar (USD).

Markets will be focusing squarely on US inflation figures due this week,though Japanese Gross Domestic Product data is due early Thursday. Markets are broadly expecting Japanese GDP growth to contract, forecast to print at -0.4% in Q1 compared to the previous quarter’s 0.1%. 

US Producer Price Index (PPI) inflation is slated for Tuesday, with Core PPI inflation expected to hold steady at 2.4% YoY in April. Wednesday’s US Consumer Price Index (CPI) inflation is expected to hold steady at 0.4% MoM in April, with YoY headline CPI inflation expected to tick down to 3.4% from 3.5%.

Despite a recent parade of policymakers from the Federal Reserve (Fed) voicing caution about markets hoping for rate cuts at a faster pace and sooner than the Fed can achieve, market hopes are still pinned firmly on two Fed cuts in 2024, with the first broadly expected to come in September. According to the CME’s FedWatch Tool, rate markets are pricing in nearly 90% odds of a rate cut in 2024, with 65% odds of a 25-basis-point cut in at the Fed’s September rate meeting.

USD/JPY technical outlook

USD/JPY has been slow to recover ground, but progress has been notably one-sided as the pair drifts higher, climbing over the 200-hour Exponential Moving Average (EMA) near 155.36. The pair is testing into chart territory north of the 156.00 handle, and is up nearly 3% from the last post-Yentervention bottom below 152.00.

USD/JPY is on pace to close in the green for a fifth out of the last six trading days after a sharp decline from multi-year highs above 160.00. The long-term bullish uptrend remains firmly intact, with bids trading well above the 200-day EMA at 148.29.

USD/JPY hourly chart

USD/JPY daily chart