๐๏ธMarkets are pricing possible BoJ intervention amid USDJPY rally
The USDJPY pair today broke above the 160 barrier, a zone not seen since 1986. The continuation of the pair's uptrend has accelerated recently on the back of, among other things, better PMI data from the US economy, which strengthened the US dollar in the broad FX market.ย The Japanese yen weakened against the US dollar, two days ahead of the Federal Reserve's key consumer price inflation indicator, PCE. Although we didn't learn any data from Japan or the US today that could justify the high volatility, the market still seems to be exerting speculative pressure on the yen as Japan's economy shows signs of improvement while the Bank of Japan maintains its dovish stance.ย
Start investing today or test a free demo
Open real account TRY DEMO Download mobile app Download mobile appThe swaps market is pricing that the BoJ will raise interest rates by 10 basis points at its meeting scheduled for July 31. However, this outcome is not certain, for past CPI data has not indicated that the slightly higher inflation readings were driven by an actual increase in consumer demand (one of the BoJ's key conditions for a rate hike). Source: Bloomberg Financial LP
- Recent statements by leading politicians and representatives of Japan's financial sector indicate that Japanese elites are looking more and more carefully toward a weakening yen, which could increase domestic inflationary pressures. ย
- According to Wells Fargo analysts, the Bank of Japan will hold off on potential intervention until at least the 165 level on the USDJPY pair; they also indicated that the bank needs more volatility to achieve the intended effect of currency interventions, which have already cost bankers more than $60 billion this year. Japan's Finance Minister Suzuki and Foreign Exchange Delegate Masato Kanda have recently indicated that the BoJ is ready to intervene 24 hours a day
- Traders, however, do not seem particularly concerned about the risk of another intervention and are selling off the yen. Bloomberg analysts suggest that 161 on USDJPY is also a likely level for intervention, although the pair is likely to be left with little volatility today, ahead of Friday's PCE data reading. A lower-than-expected PCE reading could increase volatility on the yen and make intervention more likely, further supported by a potential drop in yields and the dollar index.
The USDJPY pair is breaking out to new multi-year highs. Source: xStation5
The content of this report has been created by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, (KRS number 0000217580) and supervised by Polish Supervision Authority ( No. DDM-M-4021-57-1/2005). This material is a marketing communication within the meaning of Art. 24 (3) of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II). Marketing communication is not an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC and Commission Delegated Regulation (EU) 2016/958 of 9 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the technical arrangements for objective presentation of investment recommendations or other information recommending or suggesting an investment strategy and for disclosure of particular interests or indications of conflicts of interest or any other advice, including in the area of investment advisory, within the meaning of the Trading in Financial Instruments Act of 29 July 2005 (i.e. Journal of Laws 2019, item 875, as amended). The marketing communication is prepared with the highest diligence, objectivity, presents the facts known to the author on the date of preparation and is devoid of any evaluation elements. The marketing communication is prepared without considering the clientโs needs, his individual financial situation and does not present any investment strategy in any way. The marketing communication does not constitute an offer of sale, offering, subscription, invitation to purchase, advertisement or promotion of any financial instruments. XTB S.A. is not liable for any clientโs actions or omissions, in particular for the acquisition or disposal of financial instruments, undertaken on the basis of the information contained in this marketing communication. In the event that the marketing communication contains any information about any results regarding the financial instruments indicated therein, these do not constitute any guarantee or forecast regarding the future results.