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The weak US jobs report for June could be the perfect backdrop for the government and the Bank of Japan to intervene in the forex market. What level would trigger action? Let’s discuss these topics and develop a trading plan for usd/jpy.
JPY Weekly Fundamental Forecast
According to Mizuho Bank and Sumitomo Mitsui Asset Management, USD/JPY bulls claim that previous currency interventions have not worked, and expect the pair to rise to 170. Conversely, Macquarie Group expects the US dollar to weaken to 120 yen. The failure of the government and the Bank of Japan is due to the fact that they are acting on the wrong side. Once the Fed starts cutting interest rates, there will be nothing left for the pair to do but fall sharply.
The previous unsuccessful intervention in the forex market took place in late April and early May and cost the authorities more than $60 billion. According to Citigroup, the Bank of Japan has about $200-300 billion at its disposal for immediate currency interventions. However, it is not money that determines their effectiveness. Until the macroeconomic backdrop changes, it is difficult to expect a reversal of the USD/JPY bullish trend.
The very large spread in interest rates in the U.S. and Japanese debt markets allows speculators to remain bearish on the yen. In theory, this could end in huge losses, but it would require Tokyo and Washington to starve hedge funds and asset managers of their money.
Net speculative positions on G10 currencies
Source: Bloomberg.
Unsurprisingly, government officials, including Finance Minister Shunichi Suzuki, do not specify a specific level that does not meet the authorities’ targets. They merely indulge investors in verbal interventions. Mitsubishi UFJ Group believes the threshold for USD/JPY will be 162, while Wells Fargo suggests 165. But linking intervention to important events seems more realistic than responding to a specific USD/JPY rate.
The results of the first round of the French parliamentary elections boosted euro prices but did not slow down the rise of the US dollar against the Japanese yen. Perhaps statistics on the American labor market will help their opponents. In the forex market, some believe that the sharp rise in unemployment in June will force the Fed to talk about cutting the federal funds rate in September, lower yields on US Treasuries, and help the Bank of Japan improve the situation.
Accelerating inflation in Tokyo, the leading indicator of national consumer prices, allows Kazuo Ueda and his colleagues to raise overnight interest rates as early as late July. Combined with slowing quantitative easing and currency intervention, this could be a triple whammy for the USD/JPY. But Japan is unlikely to be able to hold rates steady without U.S. help.
Inflation changes in Tokyo
Source: Bloomberg.
USDJPY Weekly Trading Plan
the usd/jpy On the verge of currency interventions. Buying the Japanese currency is very risky. Conversely, pending orders to sell the pair can be placed at the levels of 160.25 and 159.5. The Bank of Japan is likely to enter the market amid weak US employment data for June, which will accelerate the collapse of the US dollar against the yen.
USD/JPY Real Time Price Chart
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