Today’s Market Outlook USD/JPY Remains Resilient Despite Intervention Concerns, with Nervous Trading Centred on ¥157
Today’s Market Outlook
USD/JPY Remains Resilient Despite Intervention Concerns, with Nervous Trading Centred on ¥157
Market Overview
At the start of the week, USD/JPY opened in the low ¥157 area, extending the yen-strength trend seen late last week. It rose from ¥157.17 to ¥157.86 in Tokyo trading, but subsequently lacked clear direction.
Dollar buying, supported by higher oil prices and expectations of further US rate hikes, is underpinning the market. However, verbal intervention from Japanese and US authorities, together with concerns over actual currency intervention, is capping the upside.
In early London trading, Vice Finance Minister Mimura said that authorities would “respond firmly” to the foreign-exchange market, referring to discussions between Japanese and US leaders and finance ministers. Intervention concerns triggered yen buying, sending USD/JPY down to around ¥156.51.
However, the yen-buying momentum then faded and USD/JPY recovered to the ¥157 area. The fact that the market’s reaction to verbal intervention was short-lived highlights the pair’s underlying resilience.
USD/JPY
USD/JPY is trading around ¥157.04.
The pair fell to ¥156.51 following Mimura’s remarks, but recovered to the ¥157 area within a short period. Despite intervention concerns, the market appears to be buying dips in USD/JPY, supported by higher oil prices, expectations of US rate hikes and the US-Japan interest-rate differential.
Nervous trading centred on ¥157 is likely to continue.
On the upside, ¥157.86, the Tokyo high, is the first resistance level, followed by ¥158. A renewed move into the ¥158 area would likely intensify concerns over further verbal intervention or rate checks by Japanese authorities.
On the downside, the London low of ¥156.51 is important. A clear break below this level could revive the yen-strength trend seen late last week, opening the way towards ¥156 and the upper ¥155 area.
However, the market may become progressively less responsive to similar verbal warnings. Unless actual intervention takes place or officials signal more concrete measures, dollar buying is likely to emerge on declines.
The Balance Between Intervention Concerns and Dollar Buying
USD/JPY is currently being influenced by two opposing forces.
Factors supporting the pair include higher oil prices, expectations of further US rate hikes, the US-Japan interest-rate differential and broad dollar strength.
Factors limiting the upside include verbal intervention from Japanese and US authorities, concerns over government and Bank of Japan intervention, and position adjustments ahead of major US data releases this week.
Particular attention should be paid to how quickly the pair recovers after official remarks. If declines triggered by such comments are recouped quickly, it will be easier to conclude that the broader USD/JPY uptrend remains intact.
Conversely, if rebounds become weaker each time authorities issue yen-weakness warnings, speculative players may be starting to reduce yen-short positions.
EUR/USD
EUR/USD remains cautious about establishing itself above the US$1.14 level.
With the broad dollar tone still firm, the pair is likely to remain heavy. Unless it can hold steadily above 1.1400, it may be pushed back into the 1.13 area.
If US yields decline or dollar strength eases, there is scope for a rebound towards the low 1.14 area. However, with major US data due this week, aggressive euro buying is likely to remain limited.
Cross-Yen Pairs
EUR/JPY rose from ¥178.85 to ¥179.73 in Tokyo trading, but fell sharply to around ¥178.20 following Mimura’s remarks. It subsequently recovered to the ¥178.60 area.
The ¥180 level is both a psychological threshold and a level at which intervention concerns are likely to increase. In the near term, trading is likely to remain centred around the upper ¥178 to ¥179 area.
GBP/JPY also rose to ¥208.99, but was unable to break clearly above ¥209 and then entered a corrective phase. The ¥209 area remains an important resistance zone.
If USD/JPY remains resilient, cross-yen pairs are also likely to find support on dips. However, if official remarks or intervention speculation trigger a sharp yen rally, cross-yen pairs could see larger declines.
Key Themes This Week
This week will bring a series of major US releases, culminating in Friday’s US employment report.
If US data is strong, expectations of further rate hikes and higher US yields could strengthen dollar buying again. USD/JPY may then recover into the ¥158 area and potentially test ¥159.
Conversely, weak data could reduce rate-hike expectations and, combined with intervention concerns, accelerate a decline in USD/JPY.
Until then, rather than committing aggressively to a direction, the market is likely to trade around ¥157 while monitoring official remarks, oil prices and US yields.
Key Overseas Market Levels to Watch
• Whether USD/JPY can hold ¥157
• The battle around the London low of ¥156.51
• Resistance at the Tokyo high of ¥157.86 and at ¥158
• Further yen-weakness warnings or rate-check reports
• Developments in oil prices and US Treasury yields
• Whether EUR/USD can establish itself in the US$1.14 area
• Renewed approaches towards ¥180 in EUR/JPY and ¥209 in GBP/JPY
Summary
At the start of the week, USD/JPY fell to ¥156.51 following yen-weakness warnings, but has since recovered to the ¥157 area. The fact that the decline did not continue despite strong intervention concerns suggests that the underlying dollar-buying tone remains resilient.
However, above ¥158, concerns over action by the Japanese government and the Bank of Japan are likely to intensify rapidly. This makes it difficult to chase the upside aggressively.
For now, the central scenario is nervous range trading around ¥157, with ¥156.51 acting as support and ¥157.86 to ¥158 forming resistance. A break out of this range is likely to require actual currency intervention, a significant move in US yields, or fresh monetary-policy signals from major US economic data.
