Aug 28, 2023

USD/JPY broke through resistance last week and risks another intervention by the Bank of Japan.

USDJPY Weekly Chart

USD/JPY: Weekly chart

USD/JPY rose to last week’s high of 146.37, with maximum resistance around 151.94.

Japan intervened in the foreign exchange market for the first time since 1998 in September 2022 in an attempt to defend the yen. The United States raised interest rates sharply, while the Bank of Japan insisted on ultra-low interest rates. Analysts believe that the Bank of Japan will not begin to scale back its massive monetary easing policy until a year later. A Reuters poll found that only one in 22 economists, or 5 percent, expects the Bank of Japan to start easing its ultra-loose policy this year.

But a former official said the bank would only intervene again for $150. Atsushi Takeuchi, head of the BOJ’s foreign exchange department, said during the 2010 intervention: “Authorities usually don’t set specific bottom lines. But for political reasons, key thresholds like 150 are important because they are easy to understand. –2012.

He said public sentiment was key to the authorities’ intervention, but fears of a weaker yen had weakened from a year ago as households grew accustomed to rising prices. The reopening of the country’s borders has also boosted the economy by increasing tourism spending.

“In Japan, when to intervene has always been an extremely political decision. Now, it is the prime minister who ultimately decides whether to intervene.” Takeuchi told Reuters.

“Public dissatisfaction with the yen’s weakness has not escalated to that extent compared to last year,” he said. “I don’t think Kishida is under tremendous pressure to respond.”

This could change if the market breaks above the 145 level, and traders should be careful when going long USD in this environment.

Fed Chairman Jerome Powell, speaking in Jackson Hole on Friday, said the Fed’s rate hike is not over.

Powell said, “Although inflation has fallen from its peak, which is a welcome development, it is still too high.”

He added: “We are prepared to raise rates further where appropriate and intend to keep policy at restrictive levels until we are satisfied that inflation is continuing to decline towards our target.”

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