USDJPY bulls venture into intervention zone :: InvestMacro

• USDJPY less than 4% from multi-decade top

• Yen worst performing G10 currency vs USD this week

• Rallied over 10% from September 2024 low

• Bloomberg medium forecast for intervention at 160.00

• Bloomberg FX model: USDJPY has 72% of trading within 153.46 – 157.95 over 1-week period

Here’s something for USDJPY traders this week…

The Yen is the worst-performing G10 currency versus the dollar and is trading less than 4% away from its multi-decade high at 161.95!

After pushing above 156.00 for the first time since July, investors are on alert for possible currency intervention from Japanese authorities.

Looking at the charts, prices have rallied over 10% from its September 2024 low at 139.57 – securing 7 consecutive weeks of gains.

The yen’s recent weakness could be attributed to an improving market mood and uncertainty over the timing of Bank of Japan rate hikes.

Zooming out, it remains the worst-performing G10 currency against the dollar year-to-date, shedding nearly 10%.

 

Taking a trip back memory lane…

The USDJPY witnessed significant price swings earlier this year after Japanese authorities intervened to support its currency.

• Japan spent ¥9.8 trillion during interventions in late April and early May after the USDJPY touched 160.00.

• Another ¥5.5 trillion was spent in early July after the Yen weakened to its lowest level since 1986 at 161.95.

According to a survey of 53 economists carried out by Bloomberg, the medium forecast of the Yen that could spark intervention was 160.

This is less than 3% away from the current price level at 155.70.

With all the above discussed, here are 3 things that could impact the USDJPY this week:

 

    1) US data + Fed speeches

Key US economic data and speeches by numerous Fed officials could influence the dollar.

Investors will direct their attention towards the weekly initial jobless claims, November PMI’s to gauge the health of the US economy. Speeches from various Fed officials may offer clues on the central bank’s next policy move.

• A solid set of strong data and hawkish comments by Fed officials may cool Fed cut bets. If this strengthens the dollar, the USDJPY may push higher as a result.

• If US economic data disappoints and Fed officials sound dovish, a weaker dollar may send the USDJPY lower.

 

    2) Tokyo October consumer price index (CPI)

Here’s what economists expect:

• CPI year-on-year (October 2024 vs. October 2023): 2.3% – down from 2.5%

• CPI year-on-year (excluding fresh food): 2.2% – down from 2.4%

• CPI year-on-year (excluding fresh food and energy): 2.2% – down from 2.1%

Ultimately, signs of cooling inflationary pressures could further reduce expectations around the Bank of Japan hiking interest rates in December.

Traders are currently pricing in a 53% probability of a 25-basis point hike by December, with the odds jumping to nearly 80% by January 2025.

The main theme likely to influence the USDJPY for the rest of 2024 may be central bank expectations.

Investors are questioning the likelihood of the Fed cutting interest rates one more time this year, while the BoJ governor Kazuo Ueda recently struck a cautious note on future rate hikes.

 

    3) Technical forces

The USDJPY is firmly bullish on the daily timeframe. Prices are trading firmly above the 50, 100 and 200-day SMA but the Relative Strength Index (RSI) is hovering near overbought territory.

• A solid daily close above 155.00 could encourage a move toward 156 and 157.95 – the upper bound of Bloomberg’s FX model.  

• Should prices slip below 155.00, this may send the USDJPY back toward 154.00 and the 21-day SMA at 153.50.

Bloomberg’s FX model forecasts a 72% chance that USDJPY will trade within the 153.46 – 157.95 range, using current levels as a base, over the next one-week period.