More Japanese Yen Weakness May Prompt the Bank of Japan To Step In

Japanese Yen (USD/JPY) Analysis and Charts

• USD/JPY is stuck in a narrow range
• The 152.00 level seems to be acting as a cap
• A strong US payrolls print might force the pace

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The Japanese Yen was a little weaker against the United States Dollar on Thursday, but the market seems to be extremely wary of pushing USD/JPY much higher. One major reason is that the Dollar is hovering around the 152-Yen level. Above that, investors suspect, the Bank of Japan’s hand might be forced against the weakness of its currency as it has been in the past. Finance Minister Shunichi Suzuki reportedly said on Tuesday that the ministry is watching market trends with ‘a high sense of urgency’, wanting to respond appropriately to ‘excessive’ currency movements. That’s extremely forthright central bank speak. He left the market concerned that 152 might be as far as USD/JPY will be allowed to go without Yen-buying intervention from the central bank.

The currency is skirting 35-year lows and interest-rate differentials still overwhelmingly favor selling it in favor of the Dollar. Even though the BoJ has this year shifted away from its ultra-loose monetary policy settings, the Yen remains a chronic low-yielder even as the markets reassess the likelihood of heavy US interest-rate reductions this year.

The BoJ will have its work cut out to halt this fundamental momentum, but on past evidence, it may well see value in slowing the process down.

USD/JPY daily trade has narrowed just below the 152-handle in the past ten days. The next major trading cue is likely to be the US nonfarm payroll release on Friday. An upside surprise here could be extremely interesting as it would probably see the Dollar surge up beyond that point, with traders then effectively daring the BoJ to step in.

USD/JPY Technical Analysis

USD/JPY Daily Chart Compiled Using TradingView

The clear narrowing of this market below the 152 barrier shows that the fundamentals are very much in charge now and likely to remain so until the BoJ either intervenes or the Dollar falls back away from that area of its own accord.

There’s near-term channel support around the 151 psychological level, with support from late February in the 150.67 area waiting just below it. Key technical props remain some way below the market, with Fibonacci retracement support at 149.247 and an uptrend channel in wait at 148.663.

IG’s own trading sentiment indicator finds the market extremely bearish at current levels, to the tune of a massive 83% of respondents. While this sort of level would normally cry out for a contrarian, bullish play, the sheer volume of bears is probably due entirely to those intervention fears. The uncommitted may be wiser to wait and see how those play out.

–By David Cottle for DailyFX