Japanese Yen Outlook: US CPI, Intervention Risks Put USD/JPY Bulls on Notice

The Japanese yen came under broad pressure on Monday, allowing yen crosses to recover some of their post-intervention losses. However, with the MOF and US Treasury prepared to coordinate again and US CPI due Wednesday, yen bears may be playing with fire as USD/JPY approaches key resistance.

 

View related analysis:

• Japanese Yen Outlook: USD/JPY Plunge Loses Steam, but Risks Remain
• Gold Price Outlook: Can Quiet Accumulation Trigger a Breakout?
• Australian Dollar Outlook: AUD/USD in the Hands of the RBA and US CPI
• FX Futures Positioning: US Dollar Longs Plunged, Yen Shorts Slashed

 

Japanese Yen Outlook: USD/JPY Faces CPI and Intervention Risks

The Japanese yen was the weakest FX major on Monday, falling against all other FX majors and allowing yen pairs to recoup some of their post-intervention losses. GBP/JPY rose around 1% to a one-week high, while the 0.9% gain on USD/JPY marked its best day since January.

The move looks less like a fresh bout of US dollar strength and more like a partial unwinding of the post-intervention yen squeeze, with traders seemingly willing to rebuild yen-funded carry positions as the initial shock fades. However, there is a significant difference this time around: traders know that Japan is prepared to intervene again, and the US Treasury has joined forces with the Ministry of Finance to support the yen.

Source: LSEG

 

 

Yen Weakness Returns, but Intervention Risk Remains

That arguably makes the current yen sell-off a case of traders playing with fire. The underlying carry dynamics still favour yen weakness, but the prospect of another coordinated intervention means the risk is no longer simply about getting the direction wrong. A sharp and potentially disorderly reversal remains a genuine threat, particularly if USD/JPY approaches the levels that previously prompted action.

For now, however, the yen has begun to retrace some of its intervention-driven gains. The charts show how far that recovery could extend across the major yen crosses.

 

 

 

Softer US CPI Could Renew Pressure on USD/JPY

While traders would be wise to keep a wary eye on the potential for fresh intervention in the yen, the main calendar event is Wednesday’s US inflation report. Traders have scaled back bets of a Fed hike in recent weeks, with Friday’s nonfarm payrolls report being the latest to disappoint. This puts traders on high alert for pockets of weak US data, and US CPI is no exception.

With the MOF joining forces with the US Treasury and vowing to intervene, even a slightly softer CPI report could bode well for USD/JPY bears. And that means we’ll be keeping a very close eye on how USD/JPY responds to the plethora of resistance levels nearby.

Source: BLS, ISM, LSEG

 

 

 

USD/JPY Technical Analysis: US Dollar vs Japanese Yen

The daily chart shows that USD/JPY managed to use the 200-day EMA as a springboard and rally to a six-day high, marking its most bullish day since January. Still, the high-to-low range indicator (bottom panel) shows that volatility remains low compared to the bearish sell-off after the MOF and US Treasury joined forces to intervene in the yen and send it lower by 4% over a two-day period. The sell-off was also exacerbated by the less hawkish-than-expected FOMC meeting.

Ultimately, this move appears corrective to my eyes. And with the risk of another round of intervention growing while USD/JPY continues to rally, bulls may want to tread with caution and keep a close eye on resistance levels.

Tuesday’s high met resistance at the monthly pivot point (159.53), with the 160 handle, July low (160.47) and 160.88 high all providing additional levels of resistance for bears to track. But if US CPI comes in soft, it could provide a great timing tool for the MOF to pull the trigger again – like they did after a soft US CPI print in July 2024.

Source: ICE, TradingView

 

 

View the full economic calendar

 

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge