USD/JPY on Intervention Watch after New 2023 Highs

USD/JPY Analysis

The pair registered a sudden and pronounced drop on Tuesday, which created speculation as to whether Japanese authorities stepped in the FX market to prop the ailing Yen. Although the move had the hallmarks of an intervention, there has not been any confirmation. In any case, the pair is on intervention watch as officials have ramped up their rhetoric, having markets guessing. Authorities had intervened in September of 2022 (at around 145.90) and again a month later.

Yesterday's fall came after USD/JPY breached 150.00 on the upside for the first time in a year and following the August JOLTS data form the US. These revealed an increased number of jobs openings (9.61 million), underscoring the hot labor market and contradicting recent signs of cooling. The figures support the Fed's higher-for-longer push, which was also bolstered by the latest round of comments. Some voters such as Ms Bowman supported further hikes ^[1], while other like Mr Williams were less aggressive, but still see the need for a prolonged restrictive stance. ^[2]

The bank of Japan on the other hand maintained its ultra-loose stance and dovish outlook in September, despite some indications that it may be moving closer to normalization. The Summary of Opinions of that meeting showed that conditions for exiting the super-easy framework were discussed, but that does not look imminent. ^[3]

There is now risk for sub-EMA200 moves after yesterday's USD/JPY drop. However, sustained weakness towards and beyond 144.43 still looks like a tall order and the downside is well-protected. Recent history indicates that the impact of any FX intervention is short-lived, unless backed by a shift in the monetary policy dymamics. The greenback draws strenght from the Fed's hawkish bias and tries regain its composure today and . USD/JPY has 152.20 in its eyesight, although intervention watch may contain it.