Japanese Yen Analysis: USD/JPY & AUD/JPY Break Out – Intervention in Play?

USD/JPY Key Points

• Japan’s new Prime Minister Sanae Takaichi appears to be in favor of a weaker yen as a way to spark inflation…while the Finance Minister is threatening intervention to support it
• This puts the Bank of Japan in a difficult spot and sets up a tense tug-of-war between the central bank and the government, though outright intervention isn’t likely until closer to 158.00 in USD/JPY in my view.
• AUD/JPY remains within its well-established bullish trend, probing its 1-year high near 101.25 ahead of AU jobs data.

It’s was a busy Asian session for Japanese policymakers jawboning, setting up a tense tug-of-war over the yen in the days and weeks to come.

In a repeat of past verbiage, Japan’s Finance Minister noted that the currency was seeing “one-sided, rapid moves of late” and that “[t]he government is watching for any excessive and disorderly moves with a high sense of urgency.” For those who don’t follow Japanese economic commentary closely, this is the exact terminology that past Finance Ministers have used to warn the market that the government was getting closer to intervening directly into the market to buy yen and support the currency.

While that is ostensibly a potential bullish catalyst for the yen (bearish XXX/JPY) in the coming days, Japan’s new Prime Minister Sanae Takaichi appears to be in favor of a weaker yen as a way to spark inflation. Earlier today, Takaichi vowed to “create a strong economy. This is a matter that affects monetary policy in a big way, so we hope to coordinate closely with the Bank of Japan… "I strongly hope the BOJ conducts policy appropriately so it sustainably and stably achieves its 2% inflation target not through cost-push factors, but by wage gains.” In not-so-subtle terms, she’s pressuring the Bank of Japan not to raise interest rates next month, a development that could lead to further weakness in the yen.

The developments over the past 24 hours puts the Bank of Japan in a difficult spot and sets up a tense tug-of-war between the central bank and the government. In my view, we’ll see each side to continue to make their case through the press in the coming days, with more jawboning and threats about intervening to support the (weakening) currency, but ultimately no outright intervention until USD/JPY gets back closer to the start-of-the year highs near 158.00.

Japanese Yen Technical Analysis: USD/JPY Daily Chart

Source: StoneX, TradingView

As we go to press, USD/JPY is testing its 9-month highs near 155.00 on the back of broad-based yen weakness. For the rest of the day/week, bulls will turn their attention to the 78.6% Fibonacci retracement of the start-of-the-year swoon just below 155.00. If that level is definitively broken, there is little in the way of meaningful technical resistance until the 16-month highs in the upper-150.00s, where intervention becomes a more serious threat. At this point, only a sharp reversal lower to break the convergence of last week’s low, the bullish trend line, and the 21-day EMA near 152.75 would erase the near-term bullish bias.

Japanese Yen Technical Analysis: AUD/JPY Daily Chart

Source: StoneX, TradingView

Turning out attention to AUD/JPY, the cross remains within its well-established bullish trend, probing its 1-year high near 101.25. Clearly the medium-term momentum favors the bulls, and a confirmed close above 101.25 would only solidify that bias for a potential test of the 16-month high near 102.50 next.

That said, bullish readers should at least monitor the bearish divergence between the currency pair and the 14-day RSI. The lower high in the momentum indicator, while the exchange rate itself made a higher high, could signal waning bullish momentum and warn of a potential reversal. At this point, it’s not too concerning unless price starts to reverse, but it is always worthwhile to consider alternative scenarios for any directional bias.

-- Written by Matt Weller, Global Head of Research

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