- There is a greater chance of intervention after Japan meets with the US and South Korea.
- The BoJ is poised to raise rates to support the yen.
- The decline in the yen is closely tied to the recent shift in the outlook for a Fed rate cut.
The outlook for USD/JPY tilts slightly bearish as the yen responds to stern warnings about its downside. Japanese authorities made it clear on Tuesday that they were ready to intervene. They have signaled their determination to stop any further depreciation of their currency.
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Japanese Finance Minister Shunichi Suzuki noted that he is more likely to intervene in the market after the US-South Korea meeting. In particular, the three countries met last week to discuss the weakening of their currencies and find a way forward.
At the same time, Bank of Japan Governor Kazuo Ueda said on Tuesday that the central bank would be ready to raise interest rates if the inflation trend reached the 2 percent target. The governor has repeatedly said that a weaker yen raises the cost of living by raising import prices. Therefore, any further weakness in the currency could trigger intervention.
The last time Japan intervened in the market was in 2022. Markets are once again on edge, expecting intervention as the yen weakened to a 34-year low. Moreover, policymakers insist that the recent weakness does not reflect market fundamentals.
However, the yen’s decline is closely tied to the recent shift in Fed rate cut prospects. Therefore, while the intervention could support the yen, it is likely to be only temporary. A more significant reversal in the pair can only come from a sudden change in political outlook in Japan or the US.
USD/JPI Key Events Today
- Flash Manufacturing PMI
- Flash Services PMI
USD/JPI technical outlook: Bulls showing signs of fatigue below 155.02
On the technical side, USD/JPI reached a new high, slightly below the critical level of 155.02. However, it is clear that the bullish momentum has weakened. Notably, the price is holding closer to the 30-SMA, indicating a much shallower move. At the same time, the RSI made a bearish divergence, signaling weaker bullish momentum.
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Therefore, there is a chance that the trend will reverse soon. Bears must break below the 30-SMA and bullish trendline to confirm a reversal. If that happens, the price is likely to fall to the key support level of 153.00.
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