Prior to the announcement of a package of important US economic data, the USD/JPY currency pair is exposed to expected selling operations. This was supported by Japanese intervention in the markets and the US dollar's decline against the rest of the major currencies after the recent Chinese measures.
The USD/JPY currency pair is stabilizing around the support level of 145.30 at the time of writing the analysis and the recent selling operations came after the currency pair tested the 151.95 resistance level, its highest in 32 years. Overall, Japanese yen volumes have risen and have remained high since last Friday's massive rally when it was reported that the Japanese government and the Bank of Japan (BoJ) had intervened to rescue the yen from a one-way market that pushed the currency to its lowest level against the dollar since 1990.
The exchange rate of the main Japanese yen USD/JPY is at abnormally high levels on Monday and Tuesday of this week, according to data obtained from two of the largest interbank currency trading platforms, after rising last Friday.
USD/JPY traded volume on EBS and Russell Group platforms reached nearly $20 billion on Monday and Tuesday after rising to $67 billion last Friday. Brent Donnelly, CEO of Spectra Markets and a veteran currency trader with time spent hedge funds and global banks including Lehman Brothers and HSBC said that “They bought quite a lot of US dollars against the Japanese yen at good levels in 2003 and more at Better levels in 2010/2011. While the current pace of selling is clearly unsustainable, it is also not impossible that they will continue to appear again and again as they did in 2003.”
While trading volume can vary from day to day, it ranged from nearly $6 billion to $11 billion per day for the USD/JPY pair on the platforms prior to the suspected intervention last Friday. Therefore, the data indicate a significant recovery in trading activity over the last week. Last Friday's intervention was the second suspected intervention in the past month. The previous one was difficult in the wake of the Fed's policy decision in September that saw the bank unveil updated forecasts warning that it could raise US interest rates to 4.5% by a year.
“The pessimistic BOJ policy stance stands firmly in stark contrast to inflation-fighting central banks like the US Federal Reserve. With USDJPY rising above the psychological significance threshold of 150 and the Japanese Ministry of Finance actively intervening in the foreign exchange markets, we are asked whether concerns about excessive yen weakness could lead to a ‘tight pivot’ from the BoJ, possibly under pressure from the government,” said Shosuke Yamada, FX Analyst at BofA Global Research. “We believe that with yields pressured and volatility rising, now would be an especially bad time for the BoJ to surprise investors with “tough pivots” as it will exacerbate risk-off sentiment in the markets. The potential market turmoil could risk hurting, not helping, the Kishida government's approval ratings —another reason why we don't think the government will pressure the BoJ to focus in the very near term," he added.
USD/JPY Forecast
- There is no doubt that the movement of the currency pair USD/JPY below the support level 145.00 according to the performance on the daily chart will be a break of the bullish trend.
- The general trend will turn to bearish over the same period as the currency pair moves towards the 142.00 support level, I am still best-selling the USD/JPY from each ascending level.
In order for the bulls to regain control of the trend, the currency pair needs to move toward the resistance levels 147.30 and 149.00, respectively. The currency pair will be affected today by the announcement of the growth rate of the US economy, the number of durable goods orders, and the number of weekly jobless claims.
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