The USD/JPY recovered about 1% as the pair rallied on the back of comments from Scott Bessent earlier today, causing the pair to reverse some of its recent “rate check” related losses. The US Treasury Secretary told CNBC that the US is 'absolutely not' intervening in dollar-yen now" and the “US always has a strong dollar policy." His comments contradicted Donald Trump’s remarks yesterday where the US President said he had no worries about the dollar’s recent weakness and that he thought it was “great”. All this leaves traders wondering what the US government’s official stance is on the dollar. Do they want a strong dollar or a weak one to give the US economy competitive advantage? If the USD/JPY were to resume lower, then this will most likely be because of continued expectations of intervention from Japan, and ongoing dollar weakness as evidenced against other pairs. The pair has now reached the first level of resistance around 153.30-153.50 area. We maintain a neutral stance on the USD/JPY forecast.
USD/JPY regains some of its losses
Bessent’s comments come after the USD/JPY was sold aggressively yesterday, along with the other majors. The dollar’s selling was notably not a move driven by falling US yields or weakness in US asset markets. Instead, it appeared to be FX-led, as stocks and bonds were stable. A lot of the more recent dollar selling has been evidenced in the USD/JPY, while we have also seen continued strength in commodity dollars and European currencies, with EUR, GBP and, most notably, CHF all gaining significant ground against USD.
The drop in USD/JPY towards the low 150s were driven partly by concerns around the Fed potentially becoming involved in USD/JPY intervention. Investors were wondering whether the US administration was simply seeking a stronger yen to help stabilise the bond markets in Japan and, by extension, the US, or whether it was leaning towards a broadly weaker dollar for competitive reasons. Both arguments made sense, with President Trump’s relaxed stance on recent weakness only reinforcing that narrative. But investors have to wonder no more, after Bessent poured cold water on the idea of intervening in the USD/JPY pair.
FOMC and tech earnings in focus next
Looking ahead, the USD/JPY forecast will be in focus again later today, and the US dollar selling could continue and may even gather pace should tonight’s FOMC meeting turn out to be a non-event or modestly dovish, given that the underlying expectations are for shift towards a pause which may therefore offer some near-term support for the dollar. However, if despite a hawkish Fed and we see the potential dollar bounce proving shallow, then that would point to very bearish underlying momentum.
After the US cash close, earnings from Meta, Microsoft and Tesla will also be in focus. Collectively, these results may provide some dollar support if the numbers are good. But any disappointments there could add further pressure to the dollar. Ahead of those tech earnings, we saw ASML delivering strong results, sending Nasdaq 100 futures to near record highs.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
