USD/JPY treads carefully as intervention spooks investors

The advances in USD/JPY remain shy. The pair has plateaued in recent sessions with little deviation from the current level of 156.90 as the lack of direction becomes evident. The momentum remains bullish, but buyers are sceptic of how much more room there is to move higher before Japanese officials intervene in markets again. Last month the bullish drive was much stronger, but it ended abruptly at the 160 mark as speculation of FX intervention arose. Despite a recovery throughout May, the mood remains slightly gloomy for USD/JPY.

USD/JPY daily chart

(Past performance is not a reliable indicator of future results)

As data continued to support the Fed’s higher-for-longer stance the US dollar remains favoured versus the Japanese yen. That said, investors are starting to doubt how much longer this setup can go on, leading to a selloff in the dollar in the past few days. It is unlikely that the bias in USD/JPY will change over the coming weeks unless we see a deviation from the Federal Reserve from its current hawkish stance or any indication that the Bank of Japan is willing to hike interest rates once again. Either of these scenarios seems highly unlikely in the short-term which suggests the path of least resistance for USD/JPY will remain higher. 

However, traders will need to overcome the technical barriers that are limiting the upside. There aren’t specific levels of resistance as such, but more so a level of distrust and uncertainty about how much further the momentum can go before being halted. It seems like for now, slow and steady wins the race, meaning we may continue to see small daily gains building on each other and testing the waters for continued appetite to move higher.