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USD/JPY hits 150 for the first time in 32 years, where to next?

By Daniela Hathorn


Updated

USDJPY
Japan's Prime Minister Fumio Kishida waves as he delivers a speech before the start of the Formula One Japanese Grand Prix at Suzuka, Mie prefecture on October 9, 2022. Source: gettyimages

USD/JPY has breached the 150 mark for the first time since 1990. The moment has been short-lived as the pair has quickly reversed to the downside, settling back around 149.85 but the move shows further proof that there is a willingness to bring the pair even higher.

It seems like investors have been tiptoeing around the 150 line for the past few sessions, with very small daily moves capped just below the area, as traders test the appetite to go higher given fears it will spark another FX intervention from Japanese officials.

 

USD/JPY 30-minute chart: momentum stalling as it nears 150

USDJPY 30-minute chart. Photo: capital.com. Source: tradingview

We saw this happen a few weeks ago as USD/JPY was nearing 146, which caused a drop of almost 4% on the 22nd of September. The intervention is intended to halt the rapid depreciation of the Yen, which has been taking place throughout most of the year, as the bank of Japan keeps interest rates ultra-low, a stark contrast to the rest of the world. This has made the Yen the ideal currency for carry trades, where it will be used as a funding currency to invest in a higher-yielding currency like the Dollar.

But the long-term effect of FX intervention gets washed out rapidly if the economic picture remains in favour of selling the Yen, meaning the overall efficiency of the intervention is pretty unsuccessful. It has, in fact, served to slow the move higher in USD/JPY, causing traders to tread with caution, stalling the bullish momentum slightly.

But similar to what happened back at the 146 mark, once the area gets cleared successfully without sparking further action from Japanese officials, then the pent-up momentum catches up and causes a strong rally.

So the key question is whether 150 is the line in the sand this time, or whether there is still some further room to move higher before action is taken. Comments over the last few days suggest the threshold is pretty near, with Japanese Finance Minister Shunichi Suzuki warning on Tuesday they would take appropriate and decisive action against excessive, speculator-driven currency moves.

This has geared up speculation that an intervention is imminent after the strong moves seen in the past week, which is the likely cause behind the immediate reversal of the move above 150 this morning as many stops will have been placed there.

EUR/USD

1.09 Price
-0.110% 1D Chg, %
Long position overnight fee -0.0080%
Short position overnight fee -0.0002%
Overnight fee time 21:00 (UTC)
Spread 0.00006

AUD/USD_zero

0.67 Price
-0.390% 1D Chg, %
Long position overnight fee -0.0071%
Short position overnight fee -0.0011%
Overnight fee time 21:00 (UTC)
Spread 0.00006

USD/JPY

156.30 Price
+0.380% 1D Chg, %
Long position overnight fee 0.0108%
Short position overnight fee -0.0190%
Overnight fee time 21:00 (UTC)
Spread 0.010

GBP/USD

1.27 Price
+0.050% 1D Chg, %
Long position overnight fee -0.0046%
Short position overnight fee -0.0036%
Overnight fee time 21:00 (UTC)
Spread 0.00013

It could also be that intervention is being done without publicly acknowledging it, meaning no knee-jerk reaction in markets but the measure is still likely to be unsuccessful in the long term. The momentum remains firmly to the upside despite buyers acting with caution, it's just a case of whether we see a bull market selloff prompted by Japanese officials before we move higher again.

Another factor keeping USD/JPY supported is the yield differential between US and Japanese bonds. There is little doubt that the upcoming Federal Reserve meeting on the 2nd of November will see another rate hike - markets are leaning on 75bps points but there are some calls for a higher 100bps hike - which means the gap between yields will widen even further.

Calls for a Fed pivot earlier this month saw the yield differential tighten as US yields dropped but the conviction is very much in favour of higher rates, and therefore a stronger US dollar against the Japanese Yen.

 

USD/JPY vs US10Y-JP10Y daily chart

 

USD/JPY vs US10Y-JP10Y daily chart. Photo: capital.com. Source: tradingview

The daily USD/JPY chart shows the pair tracking nicely along the ascending channel and finding resistance at its midpoint, a key area I mentioned last week that would see bullish momentum stall. From here, I would like to see a decisive move higher to consider further buying momentum, especially if we clear the 150 resistance. If so, the next key resistance will be the upper bound of the ascending channel, currently fixed between 153.60 and 153.90 for the coming days.

A retracement from this point could find support along the lower bound of the ascending channel, where the 20-day moving average is currently converging, between 146.45 and 145.90.

Markets in this article

USD/JPY
USD/JPY
156.301 USD
0.585 +0.380%

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