USD/JPY on Intervention Watch as it Hits 34 Year Highs
USD/JPY Analysis
In a watershed decision last week, the Bank of Japan ended nearly a decade of ultra-loose monetary stance, which has been detrimental for the Yen, abandoning negative interest rates and the yield curve control (YCC). However, this pivot did not constitute a hawkish turnaround, since policymakers will continue bond purchases and maintain an accommodative stance.
On the other side of the Pacific Ocean, the Fed stayed on the sidelines again this week and maintained its view for three rate cuts this year [1]. This dovish outcome led to only short-lived pressure to USD/JPY, as the officials have adopted a conservative approach towards lower rates, due to recent inflation stickiness, strong economy and relatively tight labor market.
USD/JPY extends this year's rise as result, hitting today new thirty-four year highs and trying to take out the July 1990 peak. This brings the 155.75 level in the spotlight, but we are not convinced it can tackle it in the near-term.
On the other hand, policy dynamics are shifting despite the slow transition, which could eventually led to a substantial repricing in the pair. In spite of the Fed's cautious stance, it still points to multiple rate cuts this year. Its Japanese counterpart is unlikely to implement aggressive tightening, but it is reasonable to expect at least one more hike this year. Furthermore, the continued devaluation of the Yen, raises chance of FX intervention by Japanese authorities. Their last action was in October of 2023 at similar levels. The country's Finance Minister warned today of potential decisive action, according to Reuters. [2]
As such, we can see a pullback towards the EMA200 (149.50) and daily closes below it would pause the bullish bias. Deeper correction has a higher degree of difficulty at this stage though, as the downside contains multiple roadblocks.
Nikos Tzabouras
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
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