Yen Hits Yearly Low Again, Sparks Speculation of Japanese Intervention

The yen breached the crucial 150 level against the dollar for the second time this month, marking its lowest point in a year. This development has heightened expectations of Japanese government intervention to stabilize the currency. The breach of the 150 level could potentially prompt the Japanese government to allocate substantial resources to support the currency, following last year's intervention where they spent as much as $60 billion.

The key factor contributing to the yen's weakness is the disparity in domestic and U.S. interest rates. The Bank of Japan (BOJ) is unique among major central banks in maintaining negative interest rates, while others, particularly the U.S. Federal Reserve, have raised rates significantly in response to inflation concerns. This has significantly favored the U.S. dollar, making the yen one of the worst-performing Asian currencies in 2023, with a depreciation of over 12% thus far.

The Bank of Japan is scheduled to meet next week, and substantial changes to its dovish stance are improbable. Nonetheless, the BOJ is contemplating modifications to its yield curve control mechanism, aiming for a closer alignment with U.S. rates. This move is in response to the increase in Japanese government bond yields, with the 10-year yield reaching its highest level since 2013. Such adjustments may potentially offer support to the yen.

Japan's Finance Minister Shunichi Suzuki expressed a sense of urgency in responding to the currency market, without confirming recent intervention. In a recent Reuters poll, two-thirds of economists anticipate the Bank of Japan (BOJ) ending its negative interest rate policy next year, moving away from ultra-accommodative measures.

Factors contributing to Japan's economic landscape include higher inflation, driven by increased food and energy prices and a weak yen, which has raised import costs. Despite these challenges, the Japanese consumer remained robust, as seen in spending on discretionary products and recreation.

BOJ Governor Kazuo Ueda emphasized the need to maintain ultra-loose monetary policy until cost-driven price increases transition to demand-driven inflation. The government plans to introduce measures to alleviate the impact of rising living costs on households, potentially involving payouts and income tax cuts.

In contrast, the U.S. dollar experienced gains, reaching a near two-week high in anticipation of the upcoming Federal Reserve meeting next week. These gains were supported by expectations of robust third-quarter GDP growth and the possibility of higher U.S. interest rates, diminishing the attractiveness of risk-driven assets. As a result, it is anticipated that the yen might experience only a modest resurgence if Japanese authorities refrain from intervening, while it is projected to remain under substantial pressure from the U.S. dollar over both the near and extended periods.

Data for Technical Analysis (5H) CFD USD/JPY

Resistance : 150.39, 150.43, 150.50

Support : 150.25, 150.21, 150.14

5H Outlook

Source: Investing.com

Buy/Long 1 If the support at the price range 150.15 – 150.25 is touched, but the support at 150.25 cannot be broken, the TP may be set around 150.39 and the SL around 150.10, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 150.39 – 150.49, TP may be set around 150.57 and SL around 150.20, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 150.39 – 150.49 is touched, but the resistance at 150.39 cannot be broken, the TP may be set around 150.21 and the SL around 150.54, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 150.15 – 150.25, TP may be set around 150.04 and SL around 150.44, or up to the risk appetite.       

Pivot Points Oct 27, 2023 03:12AM GMT

Sources: Investing 1, Investing 2