JAPANESE YEN OUTLOOK:
- The U.S. dollar weakens against the Japanese yen at the start of the week but maintains a bullish profile
- The yen appears to benefit from comments by a Japanese official signaling willingness to intervene in the FX space to prop up the domestic currency
- This article looks at key USD/JPY’s tech levels to watch in the coming days
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The U.S. dollar weakened slightly against the Japanese yen on Monday, in a session characterized by a lack of major catalysts in the market. In late morning trading, USD/JPY was down about 0.08% to 143.58, a modest pullback after this month's explosive rally. To provide some background information, the pair is up more than 3% in June and currently sits near its best levels since November 2022.
Verbal intervention by a key Japanese official during the Asian session briefly boosted the yen, but was not enough to trigger significant gains. For context, Masato Kanda, Japan's Vice Finance Minister for International Affairs, warned that the depreciation of the national currency has been "rapid and one-sided", signaling that authorities could step in to curb speculation and contain FX weakness.
While any artificial moves to prop up the yen may be a temporary source of strength, they will not significantly alter the overall trend. That said, USD/JPY will continue to be biased to the upside as long as underlying drivers, such as monetary policy divergence between the Bank of Japan and the Federal Reserve, remain in place.
Related: USD/JPY Entrenched in Strong Uptrend as US Central Bank Maintains Hawkish Posture
For reference, the Fed has raised rates by 500 bp since March 2022 and has indicated that it plans to deliver 50 bp of additional tightening through year’s end as part of its ongoing fight to restore price stability. Meanwhile, BoJ has retained an ultra-dovish stance for fear that a premature policy shift would have a detrimental impact on employment and compromise the sustainability of inflation.
In terms of technical analysis, USD/JPY cleared the 142.50 level last week, a key resistance defined by the 68.2% Fibonacci retracement of the Oct 2022/Jan 2023 rally. If this breakout is sustained, we could see a move toward 145.00 in short order. On further strength, the focus shifts to 148.80.
On the flip side, if USD/JPY fails to stay above 142.50 and reverses lower, a pullback toward trendline support at 141.30 is likely. If this floor is taken out, the exchange rate may be on its way toward 140.80/140.50.
USD/JPY TECHNICAL CHART
