USD/JPY Key Points
- BOJ intervention remains a key risk, but Ueda and company are hesitant to intervene directly lest the market runs them over.
- The biggest day for USD/JPY traders to watch will be Friday, when we’ll get both the Tokyo Core CPI reading and the latest monetary policy decision from the Bank of Japan.
- In USD/JPY, the next test to watch will be at 155.00, and if the MOF/BOJ fail to act if USD/JPY breaches that level, traders may start to turn their eyes up to 160.00 next.
USD/JPY: The Looming Threat of BOJ Intervention
The big topic on every USD/JPY trader’s mind is the potential for outright FX market intervention by Japan’s Ministry of Finance (MOF) and the Bank of Japan (BOJ). To date, policymakers have stuck with warning traders that “unwarranted” depreciation in the yen would not be tolerated, but speaking objectively, much of the yen’s depreciation this year has been warranted with the Japanese economy sputtering and interest rates poised to remain hundreds of basis points below other major developed markets for the foreseeable future.
Not surprisingly, last week featured more of the same jawboning by Japanese policymakers, but they remain understandably hesitant to step into the market lest the market quickly digests any intervention and continues to drive the yen to new multi-decade lows. It’s an unenviable position, but thankfully it’s not one that we’re in as traders.
Moving forward, my view remains the same as my colleague James Stanley, who noted last week that, “If there’s no BoJ intervention, which would be ordered by the Finance Ministry, the next natural level to track would the be the psychological level at 155.00; and if that doesn’t hold, then the 160 level that was last in-play in 1990 would come into view.”
USD/JPY: Japanese Economic Data to Watch
In addition to this week’s US economic data, highlighted by the first estimate of Q1 GDP on Thursday and the Core PCE report on Friday, these are the key Japanese datapoints to watch in the coming week:
Monday
No major releases of note
Tuesday
Flash Manufacturing PMI
Wednesday
Services Producer Price Index
Thursday
No major releases of note
Friday
*Tokyo Core CPI*
*BOJ Monetary Policy Meeting, Statement, and Press Conference*
BOJ Preview: Too Soon to Hike Interest Rates?
As you probably noticed, the biggest day for USD/JPY traders to watch will be Friday, when we’ll get both the Tokyo Core CPI reading and the latest monetary policy decision from the Bank of Japan.
Tackling Tokyo CPI first, the inflation measure from Japan’s biggest city tends to be a bigger market mover than the national reading, primarily because it comes out 2-3 weeks earlier and has proven to have a strong correlation with the Japan-wide inflation reading. Last month, the Tokyo Core CPI reading came out at 2.4% y/y, as expected. That reading was up from the (revised) 1.8%) reading seen in January, and continued strength in this measure would be cause for concern for the BOJ, which has generally upheld the view that inflation remains weak.
Speaking of the BOJ, Governor Ueda and company will take center stage later in Friday’s Asian session in its first official meeting since ending its negative interest rate policy (NIRP) in March. Broadly speaking, the BOJ is the only developed economy central bank currently looking to raise interest rates this year…but this week’s meeting is widely seen as too early to hike.
Last month’s BOJ meeting featured relatively dovish comments from Japanese policymakers, and while the yen’s drop since then (see below) theoretically supports the case for a rate hike, a surprise change to interest rates here would hint at desperation. As long as the BOJ can cite uncertainty over the fluctuating inflation rate as a reason to hold off on any immediate policy changes, I expect Governor Ueda and crew to sit on their hands until at least the summer.
Notably, the BOJ will also release its Quarterly Outlook Report. Akin to the Fed’s Summary of Economic Projections, the BOJ’s Quarterly Outlook will have updated forecasts for the rest of this year, 2025, and for the first time, 2026. Watch for a potential upward revision to the inflation forecasts, as well as whether the central bank expects core inflation to hit its 2% target in 2026.
Japanese Yen Technical Analysis – USD/JPY Daily Chart
Source: TradingView, StoneX
As the chart above shows, USD/JPY continues to consolidate near 30+ year highs in the mid-150s. With USD/JPY at its highest level in 95%+ of FX traders’ careers, there’s little in the way of relevant technical resistance levels, so traders are keying in psychologically-significant “round numbers.” Therefore, the next test to watch will be at 155.00, and if the MOF/BOJ fail to act if USD/JPY breaches that level, traders may start to turn their eyes up to 160.00 next.
Meanwhile, traders may view any short-term dips on outright BOJ intervention as “lower risk” buying opportunities until USD/JPY’s streak of higher highs and higher lows breaks.
-- Written by Matt Weller, Global Head of Research
Follow Matt on Twitter: @MWellerFX
