As a result of recent interventions by the Treasury Department and a shift in the BOJ’s rhetoric, the Japanese yen tested multi month lows. Today, however, the market is reacting to a move away from risk with a sharp sell off in the yen, which is down as much as 0.6% against the dollar.
This is an important signal ahead of the upcoming FED and BOJ decisions. Such a rapid weakening of the currency suggests that the implied BOJ rate hike had already been priced in, and the market expects further steps if the BOJ wants to achieve a lasting stabilization of the exchange rate.
Beyond the decisions themselves, communication from the central banks and the further signaled or implied path of interest rates will be extremely important. Given the tense situation in the bond market and high oil prices, the only thing one can expect with a high degree of confidence is that elevated volatility in the currency pair will persist.
USDJPY technical analysis (D1)
The long term picture points to a consistent uptrend. The price shows a clear downside deviation from the regression line, and the RSI (14) is at oversold levels. Fibonacci levels indicate a narrow consolidation between roughly 163 and 153. Despite the interest rate differential and the long term trend, the risk of intervention by both the U.S. and the BOJ remains ongoing and real. Source: xStation5
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