CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78.1% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
US English

Yen nears two-year low: Could BoJ intervene to support JPY?

By Adrian Holliday

11:56, 15 September 2022

People in the Ginza shopping district,Tokyo, February 2017
Bank of Japan is making bank rate checks in order to stem the currency tide. What chance? – Photo: Getty

Signs are building that the Bank of Japan is prepared to pull the alarm cord on the yen’s collapse. Reports of rate checks from the Bank of Japan to currency traders are multiplying.

Verbal isn’t enough

Japan’s finance ministry has given verbal warnings on the yen’s fragile state but has stepped back from direct intervention – so far. Tuesday’s strong US inflation numbers saw JPY slip more than 2%.

What is your sentiment on USD/JPY?

151.359
Bullish
or
Bearish
Vote to see Traders sentiment!

The yen is at multi-decade lows – and the Bank of Japan might be about to intervene

Much of the yen’s precipitous slump, now skirting a 24-month low, is blamed on super-loose monetary policy from the Bank of Japan, designed to encourage spending and investment but battling an ageing, shrinking and highly cautious labour force.

The sinking yen also means pricier imports, inhaling stronger quantities of inflation into the economy. Relative to its Western peers, Japan’s economy is anaemic.

JPY teardownFX strategist and finance consultant at Keirstone, Francis Fabrizi 

  • “We saw [the] price break through 141.610 resistance level last week and reached 144.883 which looks to be the next strong barrier price needs to overcome in order to go higher.”
  • Fabrizi believes a break above 144.883 is due “as this is still very bullish however, today’s US retail sales report will hopefully give us greater insight of a direction for this pair”. 
  • If price is rejected at this level then “we may see a retest of 141.610. A break below this could mean 139.380 is the next support level although I would expect this to be a temporary pullback before reaching the long term target of 147.280”.

More mo-mo, more risk

The BoJ meets on 22 September so markets should get a fresh view shortly. Finance minister Shunichi Suzuki says Japan will act “swiftly” with no warning if it decides to step in – which may mean more yen lows. Earlier USD/JPY was at 143.55.

One of the differences between speculative moves now compared to the 1980s and 1990s “is so many momentum-based trend strategies dominating markets,” points out Viraj Patel from Vanda Research.

“Anyone sitting on a very long dollar/yen position would want to think twice…I think we’re confident enough to say we’re getting close to peak dollar/yen and it’s a question of how quickly we get a correction back.”

Disruption ordered?

In terms of effectiveness, Patel is negative on BoJ intervention, but a strike might up-end the yen’s dive temporarily, even if currency intervention in the past has proven comparatively puny.

AUD/USD

0.65 Price
-0.570% 1D Chg, %
Long position overnight fee -0.0073%
Short position overnight fee -0.0009%
Overnight fee time 21:00 (UTC)
Spread 0.00006

GBP/USD

1.26 Price
-0.110% 1D Chg, %
Long position overnight fee -0.0046%
Short position overnight fee -0.0036%
Overnight fee time 21:00 (UTC)
Spread 0.00013

EUR/USD

1.08 Price
-0.300% 1D Chg, %
Long position overnight fee -0.0080%
Short position overnight fee -0.0002%
Overnight fee time 21:00 (UTC)
Spread 0.00006

USD/JPY

151.36 Price
+0.020% 1D Chg, %
Long position overnight fee 0.0113%
Short position overnight fee -0.0195%
Overnight fee time 21:00 (UTC)
Spread 0.010

Also, how would other G7 economies respond to currency intervention, fraught with potential protectionist squabbling? 

The issue is further complicated by Japan’s historic reluctance to comment meaningfully on external economic pressures, preferring to address internal imbalances and structural reforms, thereby limiting the jawboning. 

Smack in the chops?

It’s likely the upcoming Japan August CPI print, this Tuesday, may rise closer to 3% year-on-year though the recent slip in energy prices may supply some ‘wiggle’.

The last significant fx market intervention by Japanese authorities was in early 2011 following the Fukushima tsunami.

Next week sees the Fed, the Bank of England as well as the Swiss National Bank all likely hoist rates higher – in contrast to Tokyo's refusal to lift rates and support its currency.

In other words, the emphasis is on a weak economy, not the exchange rate. Japan's central bank is also independent and legally obliged to focus just on economics.

For now, there’s significant danger around highly leveraged USD/JPY. At lunchtime DXY was 0.09% up at 109.438 while GBP/USD was at 1.1491, down 0.46% while EUR/USD was 0.06% higher at 0.9988.

Markets in this article

USD/JPY
USD/JPY
151.359 USD
0.035 +0.020%
EUR/USD
EUR/USD
1.07941 USD
-0.00321 -0.300%
GBP/USD
GBP/USD
1.26266 USD
-0.00136 -0.110%
DXY
US Dollar Index
104.245 USD
0.264 +0.250%

Related topics

Rate this article

Related reading

The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided in this article is for information purposes only and should not be understood as investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents and has not been prepared in accordance with the legal requirements designed to promote investment research independence. While the information in this communication, or on which this communication is based, has been obtained from sources that Capital.com believes to be reliable and accurate, it has not undergone independent verification. No representation or warranty, whether expressed or implied, is made as to the accuracy or completeness of any information obtained from third parties. If you rely on the information on this page, then you do so entirely at your own risk.

Still looking for a broker you can trust?

Join the 580.000+ traders worldwide that chose to trade with Capital.com

1. Create & verify your account 2. Make your first deposit 3. You’re all set. Start trading