Investors Are Not Afraid Of A Second Japanese Intervention

Kuroda Stayed On The Sidelines And The Yen Responded With Losses
Exchange Rates 19.10.2022 analysis

JPY continues to slowly but surely fall in price against the USD. The risk of intervention keeps the dollar bulls from sharp movements so far, but soon the yen may be in the epicenter of a hellish funnel.

The dollar is pushing

Since January, the yen has fallen against the US currency by more than 23%. The reason for such a sharp drop lies on the surface: the Bank of Japan remains true to the dovish policy, and the Federal Reserve has taken an active hawkish stance this year.

To curb the record high inflation that hit America, the Fed has already held 5 rounds of interest rate hikes since March. Moreover, the indicator was raised by 75 bps three times.

In light of the latest higher-than-expected US inflation data, the market expects the central bank to announce another 75 bps rate hike in November.

The probability of such a scenario is estimated by traders at almost 100%. This provides strong support for the greenback, especially when paired with the yen.

The Japanese currency looks very hurt right now, as it feels additional pressure from the BOJ. The head of the BOJ literally drowns the yen every day with his marginal comments.

This happened yesterday as well. BOJ Governor Haruhiko Kuroda once again confirmed his determination to stick to an ultra-soft policy, despite the total tightening trend. He stressed that the central bank will maintain its status quo until the nature of inflation in the country becomes stable.

The combination of hawkish sentiment from the Fed and dovish statements from the BOJ pushed the USD/JPY pair to a new record. On Wednesday night, the dollar tested another 32-year high against the yen at 149.395.

Exchange Rates 19.10.2022 analysis

Japan clenching its fists

The main goal for dollar bulls right now is the key mark of 150. However, as we approach it, the risk of foreign exchange intervention by the Japanese authorities increases significantly.

Not a day goes by without Japan accusing speculators of overshooting the yen and threatening them with re-intervention in the market.

Recall that in September, the Japanese government for the first time in 24 years decided to support its national currency and carried out a large-scale intervention.

Some analysts believe that fear of a repeat of this scenario is keeping dollar bulls from hitting the psychologically important 150 threshold.

According to many traders, the red line is at this level. However, the Japanese authorities have repeatedly stated that they will be forced to press the button not by any specific mark, but by the rapid fall of the yen.

Be that as it may, the 150 barrier still remains unassailable for bulls on the USD/JPY pair. And there is one curious opinion why this happens.

Currency strategists at Bloomberg suggest that it is not at all the caution of investors who fear repeated intervention. The reason for this is the covert interventions that Japan is already carrying out with might and main.

Experts were prompted to such an idea by sudden surges in the strengthening of the yen, which have already been noted twice in the past few days.

For example, yesterday the JPY showed a slight recovery for no particular reason. Analysts believe that this was the result of the intervention.

Recall that last month Japan's Vice Minister of Finance for International Affairs Masato Kanda warned of possible covert interventions. Such a move usually involves intervention in the market on a smaller scale, which is difficult to detect.

USD can no longer be contained

Hidden or officially recognized, insignificant or as large as last time, any intervention from Japan is no longer able to change the downward trend in the yen.

Traders are well aware of the strong bilateral support the dollar currently has against the Japanese currency: the BOJ continues to go dovish, and the Fed may well accelerate even more on its hawkish path.

That is why many analysts do not even doubt that in the next few days the USD/JPY pair will finally break through the resistance at around 150.

And as we approach the Fed's November meeting, the asset is likely to open a new breath. If the market's hawkish expectations rise, the yen risks entering another tailspin.

 

Relevance up to 07:00 UTC+00 Company does not offer investment advice and the analysis performed does not guarantee results.

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Kuroda Stayed On The Sidelines And The Yen Responded With Losses

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