Forex Trading, News, Systems and More

Japanese Yen begins week with countertrend move, down nearly 30 basis points from intraday high


Share:

  • Japanese Yen continues giving ground against the US Dollar, with USD/JPY coiling up below 150 and threatening to break higher. 
  • Dovish comments from BoJ’s governor Ueda propelled the last push higher for USD/JPY. 
  • Intervention from Japanese authorities possible as key price and yield levels now approaching or touched. 

The Japanese Yen (JPY) has been giving up ground to the US Dollar (USD) on Monday morning, with the USD/JPY pair selling off from a high of 149.98 to 149.71 at the time of writing. At last check, Yen/US Dollar was down 0.09% from last week’s close. The pair remains coiled up below the key 150 level, however, threatening to breakout higher if the longer-term uptrend decides to regroup and extend.

Comments from Bank of Japan (BoJ) governor Katsuo Ueda fueled the recent rise in the pair. When responding to figures showing a fall in inflation last week, Ueda said the bank would be maintaining its current accommodative approach. His dovish words put pressure on the Yen and drove USD/JPY higher.

Japanese Yen news and market movers 

  • The Japanese Yen continues its downtrend after comments from BoJ governor Kazuo Ueda, on Friday, in which he reiterated that the BoJ would be “patiently maintaining current easy policy.”
  • This came after the release of Japanese inflation data for September revealed a slowdown in price rises. 
  • The National Consumer Price Index fell to 3.0% from 3.2% a year ago. National CPI ex-Fresh Food fell to 2.8% from 3.2% year-on-year (YoY). Whilst still above analysts’ estimates of 2.7%, it was the first time since August 2022 that the index had fallen below 3.0%. National CPI ex Food and Energy fell to 4.2% from 4.3% YoY. 
  • The yield on the 10-year Japanese Government Bond (JGB) has risen to close to the 1.0% YCC threshold. If it touches 1.0%, the BoJ will probably ease policy further to bring it down, pushing the Yen even lower. 
  • Complicating matters further, the USD/JPY briefly rose above the key 150 threshold on Monday. This is the level where the Japanese Ministry of Finance (MoF) has historically intervened in markets to strengthen the Yen so that imports do not become unaffordably expensive.
  • Due to the market’s view that the MoF usually intervenes to defend 150, it could lead to selling pressure as the idea becomes a “self-fulfilling prophecy,” according to analysts at Commerzbank. 
  •  “The market assumption that 150 constitutes the MOF’s line of defense can turn into a self-fulfilling prophecy,” Commerzbank said in its note.
  • A decisive break above 150, however, could lead to a strong move substantially higher. The breaking of the level on Monday,  “constitutes a sign that the exchange rate fundamentally justified from the market’s point of view is much higher than 150,” said Commerzbank.
  • The Japanese authorities are in Catch-22 as pressure to maintain the YCC threshold is likely to lead to a weaker Yen, whilst at the same time, maintaining the 150 threshold, will require the opposite – a stronger Yen.  

Japanese Yen technical analysis: Right-hand triangle in an uptrend 

US Dollar dynamics will also influence the pair, including the release of data in the week ahead. The Fed’s preferred measure of inflation (PCE price index) will carry the most significance when it is published on Thursday, October 27, along with Michigan Consumer Confidence. US Durable Goods Orders and GDP, out on Friday, October 28, may also impact the USD.

USD/JPY is in an overall uptrend, rising on long-term, intermediate, and short-term bases. 

It is expected to continue this trend higher, with the next major target at the 152.00 highs achieved in October 2022.  

The pair is forming a possible ascending triangle on the daily chart and a decisive break above the 150.16 highs of October 3 providing confirmation of a breakout of the triangle – also with a target in or around the 152s.  

US Dollar vs Japanese Yen: Daily Chart

In technical terms, a ‘decisive break’ consists of a long green daily candlestick that pierces cleanly above the critical level in question and then closes near to the high of the day. It can also mean three up days in a row that break cleanly above the level, with the final day closing near its high. 

Triangles are sometimes the penultimate formations in a trend, suggesting the current uptrend may be nearing its culmination point.

US Dollar FAQs

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.