The USDJPY pair instantly recovered a good part of the losses today after the probable intervention of the Bank of Japan and is now gaining more than 1%, back above the 155 limit. Admittedly, Japan's top foreign exchange market diplomat, Kanda refused to comment and did not confirm that the BoJ intervened in the market while among traders it has become an open secret.
- The market is familiar with the broad history of the effects of currency interventions, of various central banks; mostly it is aware that in the vast majority they did not permanently reverse the weakening trend of the currency. As a result, we may continue to see strong speculative interest in bearish positions on the yen and long, on USDJPY. At least until there are significant changes in Japanese and US monetary policy. Sentiment could be reversed, for example, if the Fed loosens policy and the Bank of Japan begins to tighten it, which does not seem an impossible scenario in the future.
- Nevertheless, this remains in the realm of market fantasies, as the Fed's Powell makes future Federal Reserve decisions contingent on incoming data and does not rule out no rate cuts, throughout 2024. Without significant fundamental movements, the yen's weakening trend remains very strong. Moreover, recent readings from Japan have also not performed particularly strongly, legitimizing the still cautious, dovish posturing of BoJ policymakers. Japanese consumer sentiment today proved weaker than forecast; the reading indicated 38.3 versus 39.8 expectations and 39.5 previously.
USDJPY chart (D1)
The pair briefly traded below 153 today, but the markets began to quickly sell off the yen, as a result of which we are seeing levels above 155 again. If the market returns to the vicinity of 158, the road to 160 may prove open. Currently, the pair is measuring the 23.6 Fibonacci retracement of the upward wave from the fall of 2023.
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