USD/JPY: Japanese Authorities Signal Intervention Amid Rapid Currency Appreciation

USD/JPY

The rapid rise of the USD/JPY pair from below 145 to above 147.5 since the second half of last week triggered verbal intervention from Japanese authorities. Masato Kanda, vice minister of finance for international affairs, told reporters that "we won't rule out any options if speculative moves persist,". Following this announcement, the USD/JPY pair dropped below 147.50 but eventually rose.

The last time Japanese authorities intervened was in October 2022, to the tune of around 62 billion US dollars. If authorities resort to actual intervention, it could limit the USD/JPY's growth in the near future, but it won't change the general direction, as only fundamental reasons like exiting accommodative monetary policy can reverse the pair to the downside. There's a low probability of such a move in the near term.

On Wednesday, a member of the Bank of Japan's board, Takata, stated, "I believe the BoJ must patiently maintain easy policy given very high uncertainty on outlook," Currently, Japan has an ultra-loose monetary policy and the strongest macroeconomic performance in the Western world. Japan's Consumer Price Index is rising and exceeds the target (currently at 3.4% on an annual basis), but it will likely maintain its ultra-easy monetary policy, as it will take more than 12 months to combat structural deflation.

The net short JPY position increased by 0.2 billion over the reporting week, with the speculative bearish imbalance at -8.4 billion. Thus, positioning in the yen remains firmly bearish. The price is above the long-term average, but it lost the momentum, increasing the likelihood of a correction.

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The yen has reached the upper band of the bullish channel, and is currently facing an uptrend, and there is no reason to doubt it. At the same time, the price has lost momentum, and in light of the verbal intervention from Japanese authorities, there's a high likelihood of a correction. If the uptrend resumes, the target will be the multi-year high of 151.96, but the closer it gets, the higher the probability of not just verbal but actual currency intervention. It's more likely that Japanese authorities won't allow a rapid yen depreciation, and in the event of intervention, a retreat to the broad support zone of 144/145 is not out of the question.