The yen was last this weak against the US dollar in late April, leading to currency interventions as the Bank of Japan deemed a rate above the psychological mark of 160 yen per USD unacceptable.
The current weakness of the yen has triggered the usual warnings from Japanese officials against “excessive” volatility, which can be interpreted as a sign of a new wave of interventions.
It is noteworthy that following the intervention in late April (when the yen strengthened by 4.5% by the first days of May), it took the market less than two months to negate almost the entire effect of the Bank of Japan’s actions. This indicates a strong upward trend (shown in blue), driven by the interest rate differential between Japan and the US.
According to Reuters:
→ The 160.00 level is seen as a red line for the Japanese, considering that yen weakness increases imported inflation and pressures the Bank of Japan (BoJ) to further unwind its ultra-loose policy.
→ The minutes from the latest central bank meeting confirmed extensive discussions about reducing bond purchases and raising rates.
Technical analysis of the USD/JPY chart shows that:
→ In June, the rate is in an upward trend (shown in orange), which has lifted the dollar from the lower to the upper half of the blue channel;
→ The 158.20 level may serve as support (as it is former resistance, reinforced by the median of the blue channel).
It is possible that within the orange channel, the USD/JPY rate could reach the upper boundary of the blue channel and even surpass the multi-month peak of April, making a reaction from the Bank of Japan almost inevitable.
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