The USD/JPY pair has continued its rally, reaching a key long-term resistance level of 159.60, marking a significant milestone in its upward trajectory. The swift upmove in the Asian session has led to increased volatility, raising concerns about the potential for FX intervention to stabilize the market. Abrupt intraday movements in the pair have added to the uncertainty, indicating the possibility of external intervention to manage the currency fluctuations.
The recent price actions of USD/JPY have been driven by multiple factors, including the persistent strength of the US dollar and concerns about inflation in the country. With the core PCE price index standing at 2.8% year-on-year, higher than expectations, the US Federal Reserve’s dovish pivot narrative has come into question. In contrast, the Bank of Japan’s monetary policy decision lacked the expected impact on the JPY weakness trend, as highlighted by Governor Ueda’s comments on imported inflation and interest rate hikes.
The Japanese Ministry of Finance has expressed urgency in monitoring the FX market and responding to abrupt market movements. The recent spike in USD/JPY during the Asian session has raised red flags, prompting officials to consider potential interventions to address the volatility. The increased risk of FX intervention stems from the significant jump in the 4-week moving average of the pair’s weekly range indicator, signaling heightened market activity and uncertainty.
Large speculators have taken substantial net bearish positions on JPY in the futures market, reaching historically low levels. The aggregate net bearish open positions indicate a potential trigger for FX intervention by Japanese authorities, as panic short covering could lead to a liquidity squeeze and negative feedback loop in the USD/JPY pair. The extreme positioning of large speculators adds to the complexity of the current market dynamics and the risks associated with potential interventions.
Short-Term Swings and Intervention Footprints
The wild intraday swings in USD/JPY, particularly below the key resistance level of 159.60, have raised suspicions of actual FX interventions by Japanese authorities. While the pair briefly soared to an intraday high of 160.23, it quickly reversed course, erasing gains and highlighting the uncertainty in the market. The absence of official confirmations from the Ministry of Finance further adds to the speculation surrounding potential interventions and their impact on the currency pair.
The continued volatility in USD/JPY, coupled with heightened risks of FX intervention, underscores the challenges faced by market participants. As speculative positions and market dynamics shift, the potential for abrupt movements and liquidity squeezes remains a key concern. Monitoring the developments in the currency pair, along with official communications from relevant authorities, will be crucial in navigating the evolving landscape of USD/JPY trading.