Broad Japanese Yen Strength Observed with Currency Officials Addressing FX Intervention and Monetary Policy

A notable Japanese Yen strength was observed late on Friday as Bank of Japan (BoJ) and currency officials addressed FX intervention and monetary policy. This led to a decline in the USD/JPY, but major currencies are still on track for another weekly gain.

Japanese government bond yields have eased in sympathy with the US, global trend.

The analysis in this article makes use of chart patterns and key support and resistance levels.

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Broad Japanese Yen Strength Observed on Friday

Comments from the Japanese finance ministry and from Bank of Japan Governor (BoJ) Kazuo Ueda inspired a late comeback in the yen across major FX pairs. The yen has otherwise experienced broad weakness despite the recent moves lower in the dollar on a worsening economic outlook for the world’s largest economy.

However, the finance ministry’s Akazawa confirmed that any FX intervention will be aimed at arresting market volatility and Tokyo won’t intervene just because the currency is weakening. Taking this statement at face value, it would be reasonable to assume this meant FX intervention may not be as imminent as many may have believed, causing further weakness in the yen. Comments from BoJ Governor Ueda also lacked any sense of urgency, reaffirming that policy will only change if inflation is expected to be sustainably above target. However, markets saw this as an opportunity to claw back recent losses heading into the end of the week.

USD/JPY headed lower on Friday after comments from Tokyo and BoJ officials, trading well below the 150 mark once again. Markets have become more brazen, trading above the supposed tripwire for the next round of FX intervention (150) in the absence of pushback from top officials.

Top currency officials may be more tolerant of yen weakness given oil prices have dropped notably in the past weeks. The net importer of oil will breathe a slight sigh of relief now that oil prices are under pressure, allowing the export industry to capitalize on its greater price competitiveness. USD/JPY now tests the 50-day simple moving average (SMA) as dynamic support but the recent inability of the yen to build on any appreciation suggests a bearish continuation may be hard to come by or require an additional catalyst.

Major Event Risk Ahead

Next week the economic data is fairly light across the board, but we do get FOMC minutes to read over. With US rates now most likely at their peak, markets will be looking for further signs/risks of overtightening now that the risk of not doing enough and doing too much has become more balanced. Softer US data has already led the Fed funds futures market to bring forward rate cuts 2024, with nearly 100 bps worth of cuts expected.

Then, towards the end of the week, Japan releases inflation data. The BoJ is still collecting data before making a decision to withdraw from its negative interest rate regime; seeking compelling evidence of demand-driven inflation that will breach 2% in a stable and sustainable manner as well as witnessing sustainable wage growth. The majority of analysts polled by Reuters see the end of negative rates in 2024.