Japanese Yen is under pressure from the USD as potential rescue looms.

Oct 17, 2022
VOT Research Desk

Market Analytics and Considerations

Along with Treasury yields, USD/JPY has continued to rise.

The market is frightened by the Bank of Japan over concerns about intervention.

As the market weighs the possibility of a new intervention by the Bank of Japan (BoJ), the Japanese yen is languishing close to lows it reached last Friday, 32 years ago.

It has been almost a month since the Japanese government sold USD/JPY to stabilize the currency’s value. The high was 145.90 at the time, and as the market moves away from the psychologically significant level of 150, it is currently trading above 148.

The beginning of the week has already seen some jawboning, with Masato Kanda, Japan’s Vice Finance Minister for International Affairs, stating that every nation would respond appropriately and firmly to excessive currency movements.

Additionally, comments from Finance Minister Shunichi Suzuki indicated that authorities would take decisive action against excessive currency fluctuations. Traders are cautious to begin the week because of these remarks.

When the underlying fundamental circumstances support such meddling in markets, official intervention typically succeeds more effectively. While the Federal Reserve is indicating that jumbo hikes are on the horizon for their target rate, the BoJ has stated that they will maintain ultra-loose monetary policy going forward.

The Bank of Japan (BoJ) maintains yield curve control (YCC) by aiming for a band of +/- 0.25% around zero for Japanese Government Bonds (JGBs) over a 10-year period. The BoJ’s policy rate is -0.10%.

On the other hand, after the US CPI came in higher than expected on Thursday, the Fed appears to be as hawkish as ever.

Ten-year Treasury yields and the spread between Treasuries and JGBs demonstrate the disparity in policy. It is easy to see the connection with USD/JPY.

When it reached a new high of 148.86 last week, USD/JPY hit a 32-year high against the upper band of an ascending trend channel.

At 149.35, that level and the 161.8% Fibonacci Extension of the move from 145.90 to 140.35 may serve as support.

With the price trading above all period Simple Moving Averages (SMAs) with a positive gradient, bullish momentum appears to be intact.

A snap below the 10-day SMA, which is currently at 146.21, could be a sign that bullish momentum is waning in the near future.

Simple Moving Averages (daily)

MT-4:00)