Chart of the Day - USDJPY (22.10.2024)

06:45 22 October 2024

The USD/JPY pair surged on Monday, breaking through the critical 150.00 level to reach new highs, triggering immediate speculation about potential Japanese intervention. The currency pair touched 150.78, marking a 150+ pip jump from its Asian session lows, as multiple factors aligned to drive the yen lower against the dollar.

This significant move comes against a backdrop of heightened political uncertainty in Japan, where recent polls suggest the possibility of a minority coalition government following the upcoming October 27 election. The political instability is creating additional pressure on the yen, as markets grapple with potential implications for the Bank of Japan's monetary policy trajectory.

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US Treasury Yield Curve Source: Bloomberg

The surge in U.S. Treasury yields continues to be a primary driver, with the 10-year benchmark climbing above 4.11%. This yield differential remains a crucial factor supporting dollar strength against the yen, particularly as markets now price in approximately two 25-basis-point rate cuts for the coming year, a more conservative outlook than previous expectations.

Market attention has intensified around potential intervention by Japanese authorities. Mizuho's weekly outlook specifically highlighted that "verbal intervention threat rises as USD/JPY rises above 150, suggesting increased vigilance from market participants for possible action from the Ministry of Finance or the Bank of Japan.

The political dimension adds another layer of complexity to the currency's outlook. The potential for the ruling LDP-Komeito coalition to lose its majority could significantly impact the BOJ's ability to execute its gradual exit from ultra-loose monetary policy. Opposition parties' varying stances on monetary policy, with some favoring continued accommodative measures, are creating additional uncertainty in the market.

Short-term trading dynamics show increased hedging activity, with options markets reflecting growing demand for protection against sharp yen movements. This defensive positioning suggests market participants are preparing for potential intervention or increased volatility around the upcoming election.

Looking ahead, the currency pair faces several key event risks, including:

  • The October 27 Japanese general election
  • Upcoming Federal Reserve policymaker speeches
  • Continued monitoring of U.S. Treasury yield movements
  • Potential intervention from Japanese authorities
  • Bank of Japan two-day policy meeting concluding on Oct. 31, with expected pause in rate hikes

In summary, USD/JPY's dramatic move above 150 represents a confluence of political uncertainty in Japan, rising U.S. yields, and shifting monetary policy expectations. The market remains highly sensitive to potential intervention, with traders closely monitoring both technical levels and policy signals from Japanese authorities. The upcoming election adds another layer of complexity to an already volatile currency pair, suggesting continued high volatility in the near term.

 

USDJPY (D1 interval)

The USDJPY is trading above its 100-day SMA following a sharp move higher yesterday, signaling short-term strength. It is now approaching key resistance near the 200-day SMA, which coincides with a critical Fibonacci retracement level. For the Japanese yen to regain strength, it must first break below the 100-day SMA at 149.211 and target the support level set by the previous high at 147.166. The RSI has been consolidating below overbought levels for nearly a month, and the MACD remains tight, indicating that significant volatility may be on the horizon.

 
Source: xStation

This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.

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