USD/JPY Short-Term Bullish Structure Amidst Recent Bearish Shift

USD/JPY Talking Points:

• From shorter-terms, USD/JPY remains rather clean with higher-highs and lows and quite a bit of structure from prior swings. Last week saw a strong bounce from the 155.00 handle around FOMC and BoJ rate decisions.
• Longer-term, however, questions abound about where the next line-in-the-sand might be, and this can constrain rallies as buyers show trepidation of testing fresh breakouts as the 160.00 level nears.
• The larger facet of carry unwind would be fundamental convergence between the two economies and that doesn’t appear nearby, at this point.

If you look at USD/JPY from short-term charts, there’s a clear bullish trend that’s been in-place for most of the past two weeks. From longer-term charts, however, a shift has clearly taken place since Scott Bessent and the Japanese Finance Ministry intervened on the matter almost two months ago.

The past two weeks have seen support delivered from the five-year trendline in the pair. But, from the weekly chart below a clear change of pace has shown.

USD/JPY Weekly Chart

Chart prepared by James Stanley; data derived from Tradingview

What is clear: Significant Yen weakness will probably not be tolerated beyond the 164.00 level where we had seen a prior intervention. And this is, perhaps, relevant to the 160.00 level as well following the strong sell-off that developed three weeks ago as buyers were showing more comfort above that level.

After sell-offs, however, given the still positive carry on the long side of the pair along with some upside room until one of those problem areas might come into play, and there could be motive for buyers to jump in very much like what we’ve seen.

Perhaps most telling, it was two weeks ago when US Treasury Secretary Scott Bessent issued his clearest warning yet, saying he has asymmetric information and he knows what the Bank of Japan is going to do and he knows what Japanese policymakers will do. He then went on to say ‘you can bet against me if you want.’ And while the initial reaction to that comment was weakness in the pair – USD/JPY still didn’t break down to a fresh low. Buyers simply showed up around the 153.00 level and at this point the pair is more than 400 pips higher.

This is, of course, the type of headline that gets attention, as the Treasury Secretary baits markets only for the market to growl right back. But, in reality, this magnifies the dynamic noted above, where intervention after a five or six hundred pip sell-off makes little sense, especially when monetary policy is still decisively tilted against it.

USD/JPY Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

USD/JPY Shorter-Term

At this point bidding dips can still be argued in the pair. But the conversation around the long side grows less attractive as prices push higher and get closer to those previous lines-in-the-sand. The fear being, of course, an intervention, or a comment similar to that, as the risk-reward gets increasingly less attractive the further price rallies from support and the closer it gets to one of these spots that might elicit a response from policymakers, either on the US or Japanese side.

At this point, I think 160 can be assumed as a possible area that could produce something of that nature as we saw a massive sell-off after the last test of the big figure. But the 158.05 level may not present as much worry, even though it did provide a clean reversal on Friday morning. That was a prior swing of support and in the post-BoJ breakout, that’s what ultimately carved out the highs. It makes sense the buyers saw price test prior support and decided to take profit off the table after a smooth one-sided run.

In the aftermath of that, another key level has come back into play and this time as support at 156.68. This was a higher low back in August when the pair was recovering from the initial sell-off driven by the dual intervention, and it came in as resistance earlier in September. On Friday, this price helped to mark the swing low that has so far been defended as bulls have returned shortly after.

If we do see a larger pullback, the 155.00 area is of interest as this is what held the lows around FOMC, and that can be synced up to a spot of resistance turned support at 155.37.

USD/JPY Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Market Analyst, Global Macro