USD/JPY advances past 160 as no intervention triggered yet
Updated
USDJPY has pushed past 160 seemingly unfazed. This level has been targeted by buyers since the start of the bullish reversal last month. The fear of further intervention from Japanese officials has kept investors shy when approaching this level but once again the pair has pushed past it without triggering an immediate reaction from Japan, similar to what happened back in March at the 151 level.
Investors will now be wondering where the next trigger lies, as further intervention is expected and has been mentioned by Japanese officials in recent weeks. In the past, when a previous trigger has been successfully breached we have seen strong bullish momentum ensue, with a further 5.5% advance if we look at the case of the 150 level back in March/April. This suggests we could see further advances over the coming days as investors test the waters. 165 could be the next target for buyers before focusing on 170 if nothing happens then.
One of the major reasons behind the continued Yen weakness is the Bank of Japan’s (BoJ) policy rates. With rates so low in Japan and so high in other places, it makes the Yen the perfect currency to sell in a carry trade. This has proven to be the case even if Japanese officials intervene in FX markets. This action only triggers a minor pullback, giving traders a chance to come back in at more favourable levels. The fact is, the more the Japanese government has to rely on FX intervention to try and stem the losses in the Yen, the less effect it will have.
The fact is that if the BoJ and the Japanese finance minister were really concerned about the Yen’s weakness they have other tools to employ – rate hikes and tighter policy. But the central bank continues to push back on the necessity to hike rates, despite Japanese retail sales and industrial production data coming in stronger than expected in May, while inflation in Tokyo accelerated in June. It seems that for now a continuous depreciation in the Yen isn’t too much of a concern for them.
On the dollar side, softer inflation is helping to advocate for a September rate cut with markets pricing in a 65% chance, but Federal Reserve officials continue to offer hawkish remarks. On Friday, San Francisco Fed President Mary Daly said that monetary policy is working, but it’s too early to tell when it will be appropriate to cut the interest rate. She further stated that if inflation remains sticky or comes down slowly, interest rates would need to be higher for longer.
Investors will now be wondering where the next trigger lies, as further intervention is expected and has been mentioned by Japanese officials in recent weeks. In the past, when a previous trigger has been successfully breached we have seen strong bullish momentum ensue, with a further 5.5% advance if we look at the case of the 150 level back in March/April. This suggests we could see further advances over the coming days as investors test the waters. 165 could be the next target for buyers before focusing on 170 if nothing happens then.
One of the major reasons behind the continued Yen weakness is the Bank of Japan’s (BoJ) policy rates. With rates so low in Japan and so high in other places, it makes the Yen the perfect currency to sell in a carry trade. This has proven to be the case even if Japanese officials intervene in FX markets. This action only triggers a minor pullback, giving traders a chance to come back in at more favourable levels. The fact is, the more the Japanese government has to rely on FX intervention to try and stem the losses in the Yen, the less effect it will have.
The fact is that if the BoJ and the Japanese finance minister were really concerned about the Yen’s weakness they have other tools to employ – rate hikes and tighter policy. But the central bank continues to push back on the necessity to hike rates, despite Japanese retail sales and industrial production data coming in stronger than expected in May, while inflation in Tokyo accelerated in June. It seems that for now a continuous depreciation in the Yen isn’t too much of a concern for them.
On the dollar side, softer inflation is helping to advocate for a September rate cut with markets pricing in a 65% chance, but Federal Reserve officials continue to offer hawkish remarks. On Friday, San Francisco Fed President Mary Daly said that monetary policy is working, but it’s too early to tell when it will be appropriate to cut the interest rate. She further stated that if inflation remains sticky or comes down slowly, interest rates would need to be higher for longer.
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