The continued tightening of the US Federal Reserve Bank's policy helped the bulls push the USD/JPY currency pair towards stronger upward levels. It is recording the highest resistance level of 148.46 in ten months and settling around its gains ahead of a new round of important US economic data.
Currently, investors are waiting for any sharp movement in the price of the Japanese yen, as it hovers near the 150 level against the dollar, which some analysts consider as a stimulus for intervention by Japan. In general, the market is on alert before the Bank of Japan's policy decision on Friday, waiting for more details from Governor Kazu Ueda on negative interest rate expectations and his view on the weakness of the Japanese yen.
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The Japanese currency appears to be stuck in limbo during Asian trade today, Thursday, with the risk of intervention providing support while the widening yield gap with the United States puts pressure on it.
For its part, the Federal Reserve Bank indicated the possibility of another increase in American interest rates this year - which would further amplify the yield gap and harm the Japanese yen. That touched 148.46 today, its weakest level against the dollar since November last year, before rising slightly after Chief Cabinet Secretary Hirokazu Matsuno said Japan would not rule out any options to limit excessive movements.
Implied overnight volatility in the USD/JPY pair rose to its highest level since July 28, when the Bank of Japan surprised the market by adjusting its control over the yield curve. For his part, Masato Kanda, Japan's chief currency official, indicated on Wednesday that officials are ready to intervene in the forex currency market, with possible support from the United States. As US Treasury Secretary Janet Yellen said earlier that any intervention by Japan to support the yen would be understandable if it aimed to reduce volatility.
The Bank of Japan has maintained its ultra-loose monetary policy, including the world's last negative interest rate, even as the country's inflation has remained above its 2% target for more than a year. This keeps Japanese sovereign debt yields low relative to their peers, which affects the yen. That has lost nearly 12% against the dollar so far this year, making it the worst performer among other major currencies. The yield on the standard 10-year government bonds in the Asian country was 0.745%. While this is the highest since 2012, it is well below the US average of 4.42%.
Expectations of the dollar against the Japanese yen today:
- According to the performance on today's chart below, the general trend of the USD/JPY currency pair is still upward.
- The opportunity to move towards the psychological resistance level of 150.00 is present as long as the difference continues between the strict American Federal Reserve Bank and the Bank of Japan with the negative interest rate.
- One must be wary of an imminent Japanese intervention in the markets to prevent further collapse of the Japanese yen price. If that happens, the dollar/yen pair may be exposed to strong sales.
The move below the 145.00 level is a breach of the general upward trend. Today the currency pair will react to the announcement of the results of the US economic data led by the number of weekly jobless claims and the reading of the Philadelphia Industrial Index and the number of existing US home sales. Tomorrow will be the most important event for the Japanese Yen where the Bank of Japan will announce the update of its monetary policy.
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