In a surprising turn of events, Japan decided to intervene in the market overnight before the BOJ meeting today. USD/JPY stumbled somewhat in European morning trade just before that, falling from 163.30 to 162.28 before recovering back to around 163.00. It seems like that was perhaps a rate check call before Tokyo officials stepped in to hammer down the pair to a low close to 158.00 later in the day.
That being said, we’re already seeing a roughly 200 pips recovery in the currency pair now as price action moves back up. USD/JPY is now trading up to 160.70 as we look to European trading later, after the BOJ decided to keep monetary policy unchanged as expected.
[USD/JPY daily chart]
The intervention effort yesterday knocked USD/JPY down but it failed to lead to a strong technical break. The drop did briefly take out the 100-day moving average (red line) but fell short of testing a break of the 200-day moving average (blue line).
For some context, the last time we saw USD/JPY trade below both key levels was all the way back in July last year. So, that speaks to the kind of upside momentum that the pair has been keeping since then. That especially since October after Takaichi took over as prime minister.
The rebound today sees price move back above the 100-day moving average of 160.06 currently. So, that keeps a more bullish bias again but it is still early in the day.
I would not expect BOJ governor Ueda to really talk much about the intervention play last night as the central bank will steer clear of stepping on the toes of the ministry of finance. We are likely just to hear the usual stuff:
- No comment on FX moves, levels
- Important for FX to move stably, reflecting fundamentals
- BOJ doesn’t target specific exchange rate in policy setting
Besides that, there is the potential for Japan’s ministry of finance to decide to step in again. As a reminder, the spring intervention operation took place over a course of several days. And that saw them spend a record ¥11.7 trillion to try and pull USD/JPY down amid a breach of the 160 mark.
But as seen then, it only took about six weeks before USD/JPY overcame that psychological barrier. Naturally, it will be tougher to keep chasing things at higher levels. But considering the fundamental and macro backdrop surrounding the yen currency, the path of least resistance is still arguably for a move higher in USD/JPY at this stage.
However, traders just have to be wary that Japan’s ministry of finance is now active in the market. So, there will be pitfalls in trying to buy the dip this early on during the intervention operation.
This article was written by Justin Low at investinglive.com.
