Japanese Yen (USD/JPY) Latest

• Japan FinMin Suzuki highlights cohesive approach with BoJ
• USD/JPY defiantly ramps up to dangerous levels despite warnings
• Interest rate differential will continue to promote the carry trade until significantly reduced
• The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library

Japanese Finance Minister Highlights Importance of Working with BoJ

The Japanese Finance Minister has had more to say in the aftermath of the suspected FX intervention in late April as USD/JPY continues making strides to the upside, tempting officials to act again.

Minister Suzuki has stressed that government and the Bank if Japan (BoJ) must work together to execute their respective policies, as the BoJ seek to raise interest rates and government officials seek to support a modest economic recovery.

Suzuki went on further to repeat his usual warnings that the ministry is closely watching FX moves and that currencies need to move in a stable manner – reflecting fundamentals. Looking at a general index of yen performance vs a basket of major currencies, the yen continues to depreciate in a consistent manner.

Japanese Yen Index (Equal Weighting in USD/JPY, AUD/JPY, GBP/JPY, EUR/JPY)

Source: TradingView, prepared by Richard Snow

USD/JPY ramps up defiantly towards dangerous levels despite warnings

USD/JPY bounced off the 50-day simple moving average which proved to be the trough that followed what the majority of the market expects to have been direct FX intervention from Japanese authorities in late April. Since then, the pair has sought a return to dangerous levels, surpassing the 155 marker with little resistance.

The most immediate threat to the pair is US CPI data tomorrow. The highly anticipated print follows hotter-than-expected PPI data today and rising one-year inflation outlooks from the University of Michigan (Friday) and the NY Fed survey (yesterday). Stubborn inflation runs the risk of forcing a hawkish repricing for US rate expectations which typically adds to USD strength as well as bond yields.

160.00 remains the level of resistance but Japanese officials are closely watching the volatility around FX moves – something CPI data can impact in a negative manner. Risk management remains of utmost importance across Japanese yen pairs.

USD/JPY Daily Chart

Source: TradingView, prepared by Richard Snow

Japanese Finance Ministry Hoping for a Lower US CPI Print Despite Rising ‘Soft Data’

Recent soft data or survey data since Friday points towards a possible US CPI surprise tomorrow. Inflation expectations, one year from now, captured in the University of Michigan Consumer Sentiment report and via the NY Fed survey both rose on Friday and Monday respectively. Japan is hoping that US CPI comes down and brings the value of the dollar steadily lower over time, providing relief in USD/JPY.

After what has widely been accepted as FX intervention from Japanese officials, softer US jobs data (NFP, initial jobless claims) provided the early signs that the efforts would be supported by softening US fundamentals which would naturally see the greenback head lower. Even the US-10 year yield has eased which should, in theory, alleviate upward pressure seen in USD/JPY – something that has not been observed (see the image below comparing the path of USD/JPY and 10-year bond differentials between the two nations.

The main issue remains the interest rate differential with the US Fed funds rate more than 5% higher than the near zero Japanese policy rate. Until the gap closes in a meaningful manner, traders will continue to follow the carry trade – selling yen to buy dollars.

USD/JPY with Yield Differential Overlay

Source: TradingView, prepared by Richard Snow

https://www.dailyfx.com/news/usd-jpy-surges-despite-warnings-interest-rate-differential-fuels-carry-trade-20240514.html