With just a few seven points, the price of the USD/JPY currency pair stabilizes near the psychological resistance of 150.00 since yesterday. Breaking it may be possible today if statements by Jerome Powell, Governor of the US Central Bank, come in support of further tightening the US Federal Reserve’s policy, which is the opposite of the Bank of Japan’s accommodative policy, the first and strongest factor for more strong bulls’ control over the performance of the currency pair.
Expect the Bank of Japan to Intervene
Amid this exciting performance, the USD/JPY exchange rate is unlikely to break above 150 thanks to a potential shift in Bank of Japan policy that will allow critical bond yields to test levels above 1.0%, which in turn provides support to the Japanese yen. However, according to new analysis from Rabobank, which says that the incoming news strongly points to another shift in the Japanese central bank's settings in a direction that will support the local currency.
Accordingly, Rabobank analysts say: “Given the potential problems associated with maintaining the yield curve policy in current conditions and the risks that a weak Japanese yen will exacerbate any additional strength in oil prices, we see it as likely that there will be another policy adjustment in the coming months.” “Coming.”
The call from Rabobank analysts follows reports that the Bank of Japan will discuss raising inflation expectations for FY23/24 at its policy meeting scheduled for October 31. “The market is likely to conclude from this that the chances of further normalization of the Bank of Japan’s monetary policy may increase in the coming months,” they said. “Allowing Japanese government bond yields to rise would remove some of the downward pressure on the value of the Japanese yen.”
Meanwhile, The Bank of Japan announced in July that it would allow the value of 10-year bond yields to rise above 0.5%, as it loosened its grip on the bond market in response to inflation levels that moved above the 2.0% target. However, he also warned that he would not tolerate the yield rising above 1.0%. Yield curve control sees the bank buy Japanese government bonds to keep their yields low, which keeps the cost of lending low. Clearly, the goal is to ensure money remains cheap enough to stimulate the economy, but a side effect of this is chronic weakness in the Japanese yen, which is not helpful at a time of high oil prices. Allowing yields to test above would represent additional policy tightening that could support the yen.
The bank’s analysts believe, “While we expect the strength of the US dollar to dominate in the coming months, the policy adjustment by the Bank of Japan is likely to strengthen the psychological resistance in the USD/JPY pair at 150.” Our forecast is for a return to 148 USD/JPY on a 1-to-3-month basis. We assume further policy normalization by the Bank of Japan.”
USD/JPY Outlook & Expectations
According to the performance on the daily chart below, the general trend of the currency pair US Dollar against the Japanese Yen (USD/JPY) and the breach of the psychological resistance of 150.00 confirm the strength of the bulls’ control and push the technical indicators towards strong saturation levels of purchase, and with it increases speculation about the imminent date of Japanese intervention in the markets to prevent further collapse in the currency. Therefore, we still prefer to sell the currency pair through multiple deals without risk, waiting for this intervention, which, if it happens, will bring strong and sharp sales to the currency pair, with which the trend will quickly change to bearish.
Currently, the closest resistance levels for the currency pair are 150.20 and 151.00, respectively. Prior to Jerome Powell’s statements, he will react to the announcement of the number of weekly jobless claims and the reading of this Philadelphia industrial index, in addition to the reaction from developments on the ground in the Middle East, which supported additional strong gains for the US dollar in the markets.
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