Recent developments, including the unveiling of the FOMC minutes and the surge in the 10-year U.S. Treasuries to unprecedented levels since 2008, have further buoyed USD/JPY, with it soaring to 146.55. Economists at Japan's MUFG Bank have remarked, "The robustness of the dollar has pushed USD/JPY into precarious waters. The possibility of interventions to curb its surge is becoming increasingly palpable." This sentiment finds resonance with analysts from the Dutch bank, ING, who also believe that the pair has ventured into the realm of currency interventions. Yet, ING adds a caveat, suggesting that "there might not be enough volatility yet to truly unsettle Japanese officials."
Historically, the Ministry of Finance (MOF) stepped in when USD/JPY surpassed 145.90, as seen last September. Presently, however, both the MOF and the Bank of Japan (BoJ) display no urgency to shield the domestic currency. This contrasts with the U.S., Eurozone, and the UK, where inflation is ebbing, albeit unevenly. Interestingly, Japan is grappling with rising inflation, highlighted by the recent National Consumer Price Index (CPI) for July, which stood at a surprising 3.3%, overshooting the anticipated 2.5%.
While Japan's GDP exhibits growth, Commerzbank analysts remain skeptical about the yen's potential appreciation. They argue, "In the face of the current dynamics, the yen might dip further unless there's intervention from the Ministry of Finance. Perhaps the BoJ and the MOF are optimistic about shifts when U.S. interest rates recede." They foresee a potential weakening of the dollar, but caution that this might be a distant reality. To them, any MOF interventions in the interim might merely be stopgap measures.
Market insiders, however, voice concerns about a fragile yen, speculating that it might trigger a response from Japanese authorities. As ING suggests, "The devalued status of the yen, coupled with looming interventions, might intensify bearish adjustments in USD/JPY." Such a correction led to the pair settling at 145.37 last week. Looking forward, expert consensus suggests a bullish trajectory for USD/JPY, with 60% expecting the dollar to bolster and 40% predicting a bearish correction. Key support and resistance levels have been identified, with the upcoming release of Tokyo's CPI on August 25 marking a significant event on the economic calendar.
