USD/JPY. “Stop Sign” for the yen: Beware of the 150.00 mark
October 6, 2023 3:22 am
Buyers of the USD/JPY pair got spooked by the 150 barrier: after reaching the 150.17 level, the pair reversed and plummeted by almost 300 pips. And although an upward retracement followed this sharp impulsive decline, we can draw certain conclusions from the situation.
It seems that traders are not willing (at least for now) to test the patience of Japanese authorities. Fearing currency intervention, USD/JPY buyers are cautious about the 150 barrier. The lesson taught by the Japanese Ministry of Finance last year turned out to be quite instructive, so market participants took the hints from the Japanese government seriously this year. The US dollar’s broad weakness, which is currently observed across the market, also supported the bears. It seems that traders have defined a temporary but convenient (and most importantly, safe) limit, the boundaries of which correspond to the levels of 148.30–150.00 (the middle and upper lines of the Bollinger Bands indicator on the daily chart).
In general, the fundamental backdrop favors further USD/JPY growth. Buyers are only staying put due to fears of currency intervention, while other fundamental factors are on their side. First and foremost is the position of the Bank of Japan, which continues to implement ultra-loose monetary policy. In the run-up to the September meeting, there were rumors that the central bank might announce a calibration of the yield curve control (YCC) and even hint at a rate hike in the foreseeable future. However, following the September meeting, it became clear that the BOJ would not even discuss such steps until inflation falls to the target of 2%. Meanwhile, the latest inflation report reflected the stubbornness of key indicators. For instance, the Consumer Price Index (CPI) growth was measured at 3.2 % YoY in July 2023, against forecasts of falling to 3.0%. Excluding fresh food prices, the CPI remained at 3.1%, against an estimated fall to 3.0%.
In other words, we shouldn’t expect any changes from the BOJ in the coming months. Meanwhile, the Federal Reserve remains hawkish, allowing for the possibility of one more rate hike in November or December.
All these fundamental factors contribute to the pair’s growth. If traders were not afraid of currency intervention, the pair would have already settled above the 150.00 mark. However, this acts as a kind of “red line” – above this level lies a zone of increased risk.
To briefly recap, last autumn, the USD/JPY pair plummeted by almost 1400 pips in just 3.5 weeks (then, over the next two months, it dropped another thousand pips). This rapid decline was due to currency intervention. The bearish sentiment was also supported by the Japanese central bank, which made a change in the YCC range in December 2022 by broadening the permissible range for 10-year JGB yields. This move was perceived by market participants as a shift in a hawkish direction and contributed to the yen’s strength.
Is a repeat of last year’s events possible? Yes, it’s possible. Will traders repeat the mistake of last year by venturing into dangerous territory above the 150-pip mark? It will depend on the greenback’s behavior. In my opinion, this time the bulls will be cautious, taking profits in the range of 150.00 to 150.20. In fact, we can observe a similar pattern this week: as soon as the pair reached the 150-figure level, it quickly reversed and dropped nearly 300 pips. Such a sharp reversal raised speculations that the Japanese government and the central bank might have intervened to support the national currency. Deputy Finance Minister of Japan, Masato Kanda, refused to answer whether the Japanese authorities intervened or if USD/JPY buyers independently took profits, stopping the upward momentum. Whatever the case, the goal has been achieved: the Japanese government has marked the border and crossing it will have consequences.
Now the pair has entered “the second lap,” climbing back towards the 150.00 level. If the bulls approach the 150.00 target again (for instance, if September’s Non-Farm Payrolls are in favor of the greenback), the “stop sign” will work once more. This situation suggests that in the medium term, the pair will trade in the range of 148.30 to 150.00, alternately bouncing off its upper and lower bands.
Therefore, when approaching the borders of this price range (within which the yen is effectively trapped), USD/JPY traders should consider taking profits and reversing direction.
The material has been provided by InstaForex Company – www.instaforex.com
Buyers of the USD/JPY pair got spooked by the 150 barrier: after reaching the 150.17 level, the pair reversed and plummeted by almost 300 pips. And although an upward retracement followed this sharp impulsive decline, we can draw certain conclusions from the situation.
It seems that traders are not willing (at least for now) to test the patience of Japanese authorities. Fearing currency intervention, USD/JPY buyers are cautious about the 150 barrier. The lesson taught by the Japanese Ministry of Finance last year turned out to be quite instructive, so market participants took the hints from the Japanese government seriously this year. The US dollar’s broad weakness, which is currently observed across the market, also supported the bears. It seems that traders have defined a temporary but convenient (and most importantly, safe) limit, the boundaries of which correspond to the levels of 148.30–150.00 (the middle and upper lines of the Bollinger Bands indicator on the daily chart).
In general, the fundamental backdrop favors further USD/JPY growth. Buyers are only staying put due to fears of currency intervention, while other fundamental factors are on their side. First and foremost is the position of the Bank of Japan, which continues to implement ultra-loose monetary policy. In the run-up to the September meeting, there were rumors that the central bank might announce a calibration of the yield curve control (YCC) and even hint at a rate hike in the foreseeable future. However, following the September meeting, it became clear that the BOJ would not even discuss such steps until inflation falls to the target of 2%. Meanwhile, the latest inflation report reflected the stubbornness of key indicators. For instance, the Consumer Price Index (CPI) growth was measured at 3.2 % YoY in July 2023, against forecasts of falling to 3.0%. Excluding fresh food prices, the CPI remained at 3.1%, against an estimated fall to 3.0%.
In other words, we shouldn’t expect any changes from the BOJ in the coming months. Meanwhile, the Federal Reserve remains hawkish, allowing for the possibility of one more rate hike in November or December.
All these fundamental factors contribute to the pair’s growth. If traders were not afraid of currency intervention, the pair would have already settled above the 150.00 mark. However, this acts as a kind of “red line” – above this level lies a zone of increased risk.
To briefly recap, last autumn, the USD/JPY pair plummeted by almost 1400 pips in just 3.5 weeks (then, over the next two months, it dropped another thousand pips). This rapid decline was due to currency intervention. The bearish sentiment was also supported by the Japanese central bank, which made a change in the YCC range in December 2022 by broadening the permissible range for 10-year JGB yields. This move was perceived by market participants as a shift in a hawkish direction and contributed to the yen’s strength.
Is a repeat of last year’s events possible? Yes, it’s possible. Will traders repeat the mistake of last year by venturing into dangerous territory above the 150-pip mark? It will depend on the greenback’s behavior. In my opinion, this time the bulls will be cautious, taking profits in the range of 150.00 to 150.20. In fact, we can observe a similar pattern this week: as soon as the pair reached the 150-figure level, it quickly reversed and dropped nearly 300 pips. Such a sharp reversal raised speculations that the Japanese government and the central bank might have intervened to support the national currency. Deputy Finance Minister of Japan, Masato Kanda, refused to answer whether the Japanese authorities intervened or if USD/JPY buyers independently took profits, stopping the upward momentum. Whatever the case, the goal has been achieved: the Japanese government has marked the border and crossing it will have consequences.
Now the pair has entered “the second lap,” climbing back towards the 150.00 level. If the bulls approach the 150.00 target again (for instance, if September’s Non-Farm Payrolls are in favor of the greenback), the “stop sign” will work once more. This situation suggests that in the medium term, the pair will trade in the range of 148.30 to 150.00, alternately bouncing off its upper and lower bands.
Therefore, when approaching the borders of this price range (within which the yen is effectively trapped), USD/JPY traders should consider taking profits and reversing direction.
The material has been provided by InstaForex Company – www.instaforex.com
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