1 Week After Japanese Yen Intervention

1 Week After Japanese Yen Intervention

Last Thursday marked a highly volatile trading session for the USD/JPY, largely driven by the Bank of Japan’s (BoJ) intervention in the currency markets aimed at defending the weakening Japanese Yen. This move was the first currency intervention by the BoJ since 1998.

Parallels Between 1998 and 2022 Interventions

There are some similarities between the interventions in 1998 and 2022. In both cases, the USD/JPY approached the critical 146.00 level before the BoJ took action. In 1998, the USD/JPY breached 146.00, while the 2022 intervention occurred just shy of this price level, near 145.00.

However, the sustainability of the yen’s appreciation in response to the intervention may differ this time. Despite a sharp drop in USD/JPY from 145.90 to 140.35 in a single session following the intervention, the pair has since regained ground and is currently hovering around the 144.00 level. This suggests that the BoJ’s intervention, although impactful in the short term, may not have long-lasting effects given Japan’s ongoing commitment to ultra-low interest rates.

Current USD/JPY Outlook

As of now, USD/JPY is testing the 145.00 level, a key psychological resistance, with the Relative Strength Index (RSI) in the 60s, indicating that the pair is in an overbought condition. The price is also encountering some resistance at 144.50 on the daily timeframe.

On the positive side, there was a minor candle closure above the 144.50 daily resistance, which could signal a potential continuation of the upward trend. However, for this bullish move to sustain, the current daily candle should close strongly bullish. If the price closes below 144.50, a consolidation between 144.50 and 142.00 may ensue, and we may need to see a clear breakout before a sustained move in either direction.

In summary, while the BoJ’s intervention temporarily halted the yen’s depreciation, the underlying trend for USD/JPY seems poised to continue its upward trajectory, with 145.00 remaining a key level to watch. The market will likely remain sensitive to further BoJ actions, but the current downside potential may be limited given the BoJ’s stance on monetary policy.