USDJPY Continues to Surge, Raising Intervention Potential

USDJPY is back trading at the highs with the potential for a higher breakout. 

USDJPY – Weekly Chart

USDJPY – Weekly Chart 

The USDJPY exchange rate is trading again at the 2022 highs above 151.70. A breakout test looks imminent and could open the door to short-covering gains. 

A soaring USDJPY does raise the risk of the Bank of Japan intervening. However, Rabobank does not believe that is imminent. 

“While a break of USD/JPY 152 may not trigger FX intervention immediately, we would see a strong chance of the MoF acting to prevent a move to 155. Strong US inflation data and soft Japanese economic numbers would increase the risk of the MoF being forced into taking action,” analysts said. 

“On the assumption that the BoJ will be able to announce a second rate hike later this year and given the expectation that the Fed will be cutting rates in 2024, we expect USD/JPY to be trading at lower levels later in the year. However, we have raised our 1- and 3-month forecasts to 150 and 148 respectively from 148 and 146,” they added. 

The US dollar continues to pressure the yen after hawkish Fed remarks, and there have also been hints of potential interest rate hikes from the Bank of Japan. Last week, a strong US jobs report also saw hawkish Fed comments, which continued to pressure the yen. 

Federal Reserve officials, including Neel Kashkari and Thomas Barkin, have cast doubt on the market’s timeline for lower interest rates as the jobs market remains strong. Wednesday evening’s inflation report will be the key event this week. 

After a series of lower months, inflation is set to rise over the last month to an annualised figure of 3.4% from 3.2%. With stubborn inflation and a more robust labour market, some officials question the ability to make imminent rate cuts. 

For the yen, BoJ governor Kazuo Ueda said inflation will likely accelerate after Japan’s recent annual pay hikes. Market participants took this as a hint that the central bank could be planning another rate hike. Consequently, Japanese yields soared, boosting the yen. At the same time, Finance Minister Shunichi Suzuki warned that authorities would do all it takes to stop more sharp declines in the yen. 

The central bank intervened in late 2022, marking a top in the pair, which lasted into early 2023.

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