The Japanese Yen (JPY) experienced downward pressure on Monday as the US Dollar (USD) strengthened amidst rising risk aversion triggered by an attempted assassination of former US President Donald Trump over the weekend. Analysts anticipate potential ‘Trump-victory trades’ that could bolster the USD and steepen the US Treasury yield curve, according to a Reuters report.
Speculation around potential intervention by Japanese authorities has added to the volatility of the JPY. Recent data from the Bank of Japan (BoJ) suggested significant interventions totaling between ¥3.37 trillion to ¥3.57 trillion on Thursday to stabilize the JPY’s depreciation, as reported by Reuters.
The JPY’s rally from near 38-year lows began on Thursday following a weakening USD prompted by moderated US consumer prices in June. This data has heightened expectations of a Federal Reserve interest rate cut as early as September. CME Group’s FedWatch Tool indicates an 88.1% probability of a 25-basis point rate cut at the upcoming Fed meeting, up from 72.2% a week earlier.
Market Insights and Analyst Perspectives
ING’s FX analyst Francesco Pesole noted adjustments in Japan’s FX intervention strategy, observing a significant drop in the USD/JPY pair following soft US CPI data, which declined approximately 2%, outpacing other USD pairs. Increased volumes in JPY futures align with indications of FX intervention.
UBS FX strategists highlighted near-record short positions on the Yen by speculative investors. They suggested potential pullbacks in USD/JPY if US economic indicators continue to indicate a soft landing.
BBH FX strategists raised concerns over recent soft US data conflicting with their view of sustained inflation and robust growth, noting Federal Reserve officials’ increasing apprehension over labor market weaknesses.
Japanese Government and Central Bank Responses
Japanese Chief Cabinet Secretary Yoshimasa Hayashi emphasized readiness to employ all measures regarding forex, with the BoJ tasked to determine specific monetary policies aimed at achieving sustainable 2% inflation targets, as reported by Reuters.
Finance Minister Shunichi Suzuki acknowledged the undesirability of rapid FX movements but refrained from commenting on intervention specifics, amidst media reports on Japan’s FX rate checks.
Technical Analysis and Market Outlook
USD/JPY traded near 158.00 on Monday, showing a weakening bullish trend as indicated by a breach below the lower boundary of an ascending channel pattern on the daily chart. The 14-day RSI below 50 suggests declining momentum, potentially exerting bearish pressure with support levels tested near June’s low at 154.55.
Upside resistance is anticipated around the 14-day EMA at 159.75, followed by the ascending channel’s lower boundary at 160.20. A return within the channel could bolster sentiment towards USD/JPY, targeting the upper boundary near 163.50.
In summary, the USD’s strength amid risk aversion and speculation on US economic indicators continues to shape volatility in the JPY, with market focus on potential interventions and Federal Reserve policy signals ahead.
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