- There is a bigger chance of intervention after Japan meets with the US and South Korea.
- The BoJ is ready to hike rates to support the yen.
- The yen’s decline is closely tied to the recent shift in the outlook for Fed rate cuts.
The USD/JPY outlook leans slightly bearish as the yen responds to stern warnings against its decline. Japanese authorities made clear on Tuesday their readiness to intervene. They signaled a determined stance to halt any further depreciation of their currency.
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Japan’s finance minister, Shunichi Suzuki, noted a greater likelihood of intervening in the market after the US and South Korea meeting. Notably, the three countries met last week to discuss their currencies’ weakening and find a way forward.
At the same time, Bank of Japan governor Kazuo Ueda said on Tuesday that the central bank will be ready to hike interest rates if trend inflation reaches its 2% target. The governor has repeatedly said that a weaker yen increases the cost of living by hiking import prices. Therefore, any further weakness in the currency could trigger an intervention.
The last time Japan intervened in the market was in 2022. Markets are again on the edge, expecting an intervention since the yen has weakened to a 34-year low. Moreover, policymakers insist that the recent weakness does not reflect fundamentals in the market.
However, the yen’s decline is closely tied to the recent shift in the outlook for Fed rate cuts. Therefore, although an intervention might support the yen, it will likely only be temporary. A more significant reversal in the pair can only come from a sudden shift in the policy outlook in Japan or the US.
USD/JPY key events today
- Flash Manufacturing PMI
- Flash Services PMI
USD/JPY technical outlook: Bulls show signs of fatigue below the 155.02
On the technical side, USD/JPY has reached a new high, slightly below the 155.02 critical level. However, it is clear that bullish momentum has weakened. Notably, the price sticks closer to the 30-SMA, indicating a much shallower move. At the same time, the RSI has made a bearish divergence, signalling weaker bullish momentum.
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Therefore, there is a chance the trend might soon reverse. Bears must break below the 30-SMA and the bullish trendline to confirm a reversal. If this happens, the price will likely drop to the 153.00 key support level.
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Saqib Iqbal
