The USDJPY pair recorded another dynamic drop today of over 1%, breaking through previous post-intervention lows (155.23) and the psychological barrier of 155.00, reaching the 154 level. The yen is at its strongest against the US dollar since February, even despite rising expectations for a rate hike by the Fed. Behind the acceleration of the move on the yen is a accumulation of technical, macroeconomic, and market factors:
- Breaking the 155.00 level triggered accumulated stop-loss orders and forced option dealers to immediately sell dollars in response to breaching key option barriers.
- Market bets on further interest rate hikes by the Bank of Japan are clearly growing. An additional impulse comes from market speculation regarding a potential re-allocation of the portfolio by Japan's public pension fund (GPIF), which would buy more domestic bonds.
- The breakdown occurred under conditions of reduced liquidity caused by a holiday in the US, which amplified the impact of traditional, early-month reallocation flows from institutional capital.
- Volatility in the options market covering the upcoming BOJ and Fed meetings rose to its highest levels since January, and the risk premium for further JPY strength remains near local peaks.
Recently, we have seen a clear increase in the desire to hedge against yen appreciation. Source: Bloomberg Finance LP, XTB
Although the yen has been performing very well recently, it is worth noting that large funds have recently reduced long positions and added some short positions. However, it is worth emphasizing that these are delayed data up to last Tuesday, and the sharp strengthening of the yen only began last Wednesday.
Recently, funds increased short positions and reduced long positions. Source: CFTC, XTB
USDJPY falls below the 38.2 retracement and below the 155 level. If it turns out that the Fed does not change interest rates at the upcoming meeting and does not send a hawkish signal, while the BoJ raises rates and points to further moves, it will be possible to continue the move south, just as in 2024. Source: xStation5
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