- The price of the US dollar/Japanese yen (USD/JPY) currency pair continued to rebound and nearly touched its highest level in October 2022 at the resistance level of 151.94, which at the time prompted the Japanese authorities to intervene.
- However, the currency pair was quickly subjected to profit-taking selling amid a decline in US inflation rates below expectations, which negatively affects the path of raising interest rates by the US Federal Reserve.
- Recently, the downward path pushed the currency pair towards the support level of 150.15 before stabilizing around the level of 150.75 at the time of writing the analysis.
- Obviously, the general trend of the currency pair will remain upward as long as the highest psychological resistance level of 150.00 remains intact.
Did the Bank of Japan Intervene?
Ahead of the US economic data results, the USD/JPY declined without any clear catalyst before recovering a large portion of the decline later the same day. Although some participants may have believed that this was the result of Japanese market intervention, there is no reliable confirmation. This decline is likely a result of the $1.3 billion worth of options that expired yesterday with a strike price of around 152.00.
Meanwhile, more options are scheduled to expire at the same strike price between Wednesday and Friday. It is also possible that traders have take profit or short sell orders placed near those levels due to fears of intervention. Overall, options strike prices could continue to act as resistance if USD/JPY breaks 151.94 and forms a new 32-year high. Nevertheless, the wide interest rate differentials between Japan and the rest of the world are likely to continue to weigh on the yen.
Even if Japanese authorities decide to intervene, as long as the Bank of Japan phases out yield curve control (YCC) in piecemeal steps and occasionally intervenes in the bond market to keep long-term yields below 1%, the USD/JPY uptrend may be destined to continue. A trend reversal could be a story for 2024, when the Bank of Japan abandons the YCC policy and other central banks keep interest rates steady, with some examining the case for rate cuts at some point during the year.
Notwithstanding, before announcing a decline in US inflation rates and more recently, Federal Reserve Chairman Powell and his colleagues contradicted expectations that they had finished raising US interest rates, but investors remained largely convinced that the end of the credits for this tightening campaign had already ended. Also, they assign only a 30% probability of raising interest rates by another quarter of a percentage point by January, while anticipating cuts worth around 80 basis points by the end of next year.
USD/JPY Trading Outlook
According to the performance on the daily chart below, the overall trend for the USD/JPY pair is still up, even though the US inflation data was negative. Thus, the pair is still trading above the psychological resistance level of 150.00. As we mentioned before, the divergence between the hawkish policy of the US Federal Reserve and the ultra-loose policy of the Bank of Japan (BoJ) will continue to be a major factor in maintaining the bulls' control of the trend. The pair is expected to continue testing higher highs until the Japanese government intervenes in the markets to prevent further depreciation of the yen. Currently, the nearest resistance levels for the pair are 151.20 and 152.00, respectively.
Today, this performance will be tested, as the rest of the US inflation data, the producer price index, and US retail sales figures will be released. Positive data results will help the bulls, and vice versa. In case of negative results, there may be an opportunity for new selling operations that may hit the support levels of 150.00, 149.20, and 148.80, respectively.
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