USD / JPY Analysis

Japanese officials had been providing verbal support to the ailing Yen for some time now, but they mostly seemed unwilling or not ready to take action. More recently however, there was an escalation in their rhetoric, which increased chances of a move on the FX market.

On Wednesday, the Federal Reserve delivered another historic 75 basis points rate increase, while a day later the Bank of Japan maintained its ultra-dovish policy settings, sending USD / JPY to fresh 24-year highs. This forced the hand of Japanese authorities, which intervened in the FX market, sending the pair to a sharp reaction lower.

The main source of the Yen’s weakness and the of the roughly 24% year-to-date USD / JPY rally, is the chaotic policy differential between the US Fed which is going through its most aggressive rated hike cycle in at least a decade and the Bank of Japan. The latter is basically the only major bank with sub-zero rates (-0.1%) and also employees yield-curve control, often taping into the bond market.

The FX intervention is in stark contrast with the actions of the central bank and is unlikely to have any long lasting impact, unless the BoJ changes its policy.

USD / JPY plunged on the intervention news, but respected the EMA200 and the 38.2% Fibonacci of the August low / September high advance. Above this area, bulls have the ability to push for fresh highs towards 147.90, but it may be early for surpassing this level.

On the other hand, new intervention and another slide to 140.40-139.97 cannot be ruled out, but new catalyst and daily closes below will be required to pause the uptrend, with next support provided by the ascending trendline from the August lows (137.40).