USD/JPY makes gains, attempting to hold 149.90

Japanese Yen continues coiling in a right-angled triangle, threatening to breakout.
Dovish comments from BoJ’s governor Ueda propelled USD/JPY’s last push higher.
There is a growing chance of intervention from Japanese authorities as key price and yield levels are near.

The Japanese Yen (JPY) has held its gains against the US Dollar (USD) late Tuesday afternoon, with the USD/JPY recovering from a weak start to the week and returning to familiar territory just below the key 150 level. At the time of writing, USD/JPY is up about 20 basis points, just beneath 149.90. The trend is up and biased to extend with the threat of a breakout from a right-angled triangle providing a bullish technical clue. The daily high slightly earlier in the session was 149.9290.

Comments from Bank of Japan (BoJ) governor Katsuo Ueda fueled USD/JPY’s last bullish impulse. The BoJ governor said on Friday that the bank would be maintaining its current accommodative approach in response to figures showing a slowdown in inflation.

Daily digest market movers: Japanese Yen news and market movers

The Japanese Yen continues weakening versus USD after comments from BoJ Governor Kazuo Ueda on Friday, in which he reiterated that the BoJ would be “patiently maintaining current easy policy.”
This came after the release of Japanese inflation data for September revealed a slowdown in price rises.
The National Consumer Price Index rate fell to 3.0% from 3.2% a year ago. National CPI ex-Fresh Food inflation fell to 2.8% from 3.2% year-on-year (YoY). Whilst still above analysts’ estimates of 2.7%, it was the first time since August 2022 that the index growth had fallen below 3.0%. National CPI ex Food and Energy rate fell to 4.2% from 4.3% YoY.
The yield on the 10-year Japanese Government Bond (JGB) has risen 0.18% to trade at 0.854% at the time of writing. The YCC threshold lies at 1.0%, which if touched will likely lead to the BoJ implementing further easing to bring it down. This would also probably push the Yen even lower.
Complicating matters further, the USD/JPY briefly rose above the key 150 threshold on Monday. This is the level where the Japanese Ministry of Finance (MoF) has historically intervened in markets to strengthen the Yen so that imports do not become unaffordably expensive.
Due to the market’s view that the MoF usually intervenes to defend 150, it could lead to selling pressure as the idea becomes a “self-fulfilling prophecy,” according to analysts at Commerzbank.
“The market assumption that 150 constitutes the MOF’s line of defense can turn into a self-fulfilling prophecy,” Commerzbank said in its note.
A decisive break above 150, however, could lead to a strong move substantially higher. The breaking of the level on Monday “constitutes a sign that the exchange rate fundamentally justified from the market’s point of view is much higher than 150,” said Commerzbank.
The Japanese authorities are in Catch-22 as pressure to maintain the YCC threshold is likely to lead to a weaker Yen, whilst at the same time, maintaining the 150 threshold, will require the opposite – a stronger Yen.
US Dollar dynamics will also influence the pair, including the release of data in the week ahead. The Fed’s preferred measure of inflation (PCE price index) will carry the most significance when it is published on Thursday, October 27, along with Michigan Consumer Confidence. US Durable Goods Orders and GDP, out on Friday, October 28, may also impact the USD.

Japanese Yen technical analysis: Right-hand triangle in an uptrend

USD/JPY is in an overall uptrend, rising on long-term, intermediate, and short-term bases.

It is expected to continue this trend higher, with the next major target at the 152.00 highs achieved in October 2022.

The pair is completing what appears to be an ascending triangle on the daily chart and a decisive break above the 150.16 highs of October 3 would provide confirmation of a breakout – also with a target in or around the 152s.

US Dollar vs Japanese Yen: Daily Chart

In technical terms, a ‘decisive break’ consists of a long green daily candlestick that pierces cleanly above the critical level in question and then closes near to the high of the day. It can also mean three up days in a row that break cleanly above the level, with the final day closing near its high.

Triangles are sometimes the penultimate formations in a trend, suggesting the current uptrend may be nearing its culmination point.

Japanese Yen FAQs

What key factors drive the Japanese Yen?

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

How do the decisions of the Bank of Japan impact the Japanese Yen?

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

The BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against the Japanese Yen.

How does broader risk sentiment impact the Japanese Yen?

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.

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