Japanese Yen declines towards 162.00 vs USD as carry trades counter intervention risks

USD/JPY gains strong follow-through positive traction for the second straight day on Monday.
The wide US-Japan rate differential undermines the JPY, while Hormuz risks benefit the USD.
Intervention risks might hold back the JPY bears from placing fresh bets and cap spot prices.

Haresh Menghani FXStreet

The USD/JPY pair builds on its goodish recovery from the 160.50-160.45 region, or over a two-week low touched on Friday, and gains strong follow-through traction for the second straight day on Monday. The strong intraday move higher lifts spot prices back closer to the 162.00 mark during the Asian session, keeping traders on high alert amid expectations of a possible intervention by Japanese authorities.

In fact, Japan’s Finance Minister Satsuki Katayama said on Friday that officials are ready to act appropriately to currency fluctuations. Moreover, Japan's Chief Cabinet Secretary Minoru Kihara reiterated that the administration is closely monitoring FX moves and is ready to intervene when needed. This might hold back traders from placing aggressive bearish bets on the Japanese Yen (JPY) and act as a headwind for the USD/JPY pair.

"Intervention tends to create some of the sharpest moves in the FX market, but experienced traders know those moves often fade unless they're backed by a meaningful policy shift," said Vitalii Bulynin, CEO at Versus Trade. "The real question is whether the fundamentals have changed enough to justify a stronger Yen,” he added.

A persistently wide interest rate differential between Japan and the US continues to fuel the so-called carry trade and weigh heavily on the JPY. The Bank of Japan (BoJ) lifted its policy rate to the highest since 1995, to 1.00% in June, while the US Federal Reserve (Fed) maintained the interest rate target range of 3.5% to 3.75%. This, along with economic risks stemming from Middle East tensions, undermines the JPY and supports the USD/JPY pair.

Tensions surrounding the waterway remain elevated as Iran seeks to tighten control. In fact, Iran’s ambassador to China said on Saturday that Tehran plans to introduce new service fees for ships passing through the strategically important waterway, though the US had rejected the idea of Iran charging vessels for using the strait. Nevertheless, the standoff revives demand for the safe-haven US Dollar (USD) and further acts as a tailwind for the USD/JPY pair.

Meanwhile, any meaningful USD appreciation seems elusive in the wake of receding US Federal Reserve (Fed) rate hike bets, especially after the release of the soft US Nonfarm Payrolls (NFP) report last Thursday. Furthermore, easing inflation fears in the face of the recent slump in Crude Oil prices could allow the US central bank to adopt a more patient stance and cap the USD, warranting caution before placing fresh bullish bets on the USD/JPY pair.

Japanese Yen Price Today

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the New Zealand Dollar.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.02%	0.06%	0.34%	0.07%	0.09%	0.36%	0.11%
EUR	-0.02%		0.04%	0.33%	0.05%	0.09%	0.34%	0.09%
GBP	-0.06%	-0.04%		0.28%	-0.02%	0.00%	0.31%	0.07%
JPY	-0.34%	-0.33%	-0.28%		-0.29%	-0.25%	-0.01%	-0.18%
CAD	-0.07%	-0.05%	0.02%	0.29%		0.01%	0.29%	0.08%
AUD	-0.09%	-0.09%	0.00%	0.25%	-0.01%		0.29%	0.05%
NZD	-0.36%	-0.34%	-0.31%	0.01%	-0.29%	-0.29%		-0.24%
CHF	-0.11%	-0.09%	-0.07%	0.18%	-0.08%	-0.05%	0.24%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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