USD/JPY Latest: BOJ, FOMC, and possible FX intervention
Updated
Volatility in USDJPY has increased over the past few days as markets believe Japanese officials may have secretly intervened in the FX market. The pair breached the 160 mark earlier in the week but did a quick turnaround and headed back towards 154, prompting speculation of an intervention.
The fact the Bank of Japan kept rates unchanged on Friday weighed further on the Japanese Yen. Governor Ueda said that the impact of the yen's depreciation on inflation was marginal, which gave a dovish tone to the meeting. This widened the rate differential with the US dollar, but the bullish appetite didn’t have long to build in USDJPY as the pair quickly reversed lower.
Japanese officials have declined to comment on whether they took action to halt the depreciation in the yen, but this is not uncommon. Surprise intervention is used to keep investors guessing in hopes it deters them from weakening the currency further. The move seems to have worked so far. USD/JPY remains below 156 after being rejected on Wednesday at 158. But the impact is likely to be limited. The fundamentals continue to favour the US dollar over the Japanese Yen, and investors are trying to get back into the market this week.
Wednesday’s FOMC meeting served to reinforce the differential in policy between the Bank of Japan and the Federal Reserve. Whilst Powell and his team try to avoid sounding too hawkish – openly denying any further rate hikes will likely be needed despite recent speculation – the strength in the data and the lack of progress in the disinflation process mean the central bank is unable to start cutting rates yet – or any time soon.
Market pricing currently shows 35bps of cuts in 2024, down from 41 before the meeting. There is now only one rate cut fully priced in, and it has been pushed back to November, possibly to December if the data remains strong.
Technically, USD/JPY has welcomed the pullback as the pair was heavily overbought. That said, the path of least resistance remains firmly higher, with little long-term impact from the FX intervention. But buyers are likely going to face increased resistance in trying to get back up to 160 as investors will now be hesitant of any further intervention. 160 is going to be a key psychological level that will likely take some time to overcome, possibly seeing some sideways consolidation before it gets there.
The fact the Bank of Japan kept rates unchanged on Friday weighed further on the Japanese Yen. Governor Ueda said that the impact of the yen's depreciation on inflation was marginal, which gave a dovish tone to the meeting. This widened the rate differential with the US dollar, but the bullish appetite didn’t have long to build in USDJPY as the pair quickly reversed lower.
Japanese officials have declined to comment on whether they took action to halt the depreciation in the yen, but this is not uncommon. Surprise intervention is used to keep investors guessing in hopes it deters them from weakening the currency further. The move seems to have worked so far. USD/JPY remains below 156 after being rejected on Wednesday at 158. But the impact is likely to be limited. The fundamentals continue to favour the US dollar over the Japanese Yen, and investors are trying to get back into the market this week.
Wednesday’s FOMC meeting served to reinforce the differential in policy between the Bank of Japan and the Federal Reserve. Whilst Powell and his team try to avoid sounding too hawkish – openly denying any further rate hikes will likely be needed despite recent speculation – the strength in the data and the lack of progress in the disinflation process mean the central bank is unable to start cutting rates yet – or any time soon.
Market pricing currently shows 35bps of cuts in 2024, down from 41 before the meeting. There is now only one rate cut fully priced in, and it has been pushed back to November, possibly to December if the data remains strong.
Technically, USD/JPY has welcomed the pullback as the pair was heavily overbought. That said, the path of least resistance remains firmly higher, with little long-term impact from the FX intervention. But buyers are likely going to face increased resistance in trying to get back up to 160 as investors will now be hesitant of any further intervention. 160 is going to be a key psychological level that will likely take some time to overcome, possibly seeing some sideways consolidation before it gets there.
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