Japan warns of intervention to support yen

The yen is trading quietly on Tuesday. Early in the North American session, USD/JPY is trading at 157.68, up 0.07% on the day. Earlier in the day, USD/JPY rose as high as 158.41, its highest level since July.

The Bank of Japan has been moving slowly towards normalization of its monetary policy, which began last March with the lifting of interest rates out of negative territory. The BoJ raised rates again in July but they remain very low at just 0.25%. On Monday, BoJ Governor said that the central bank would raise interest rates if “economic and price conditions continue to improve” but didn’t provide a timeline. The BoJ could raise rates at the Jan. 23-24 meeting but might decide to wait until March or even later, depending on inflation and wage growth.

BoJ policymakers are watching with increasing dismay as the yen continues to lose ground and is trading at six-month lows against the US dollar. Japan’s finance minister Katsunobu Kato warned that the government was alarmed by the yen’s fall and was prepared to take action. The government intervened last July, when the yen fell to 160 to the dollar, and the yen is closing in on that level. Tokyo has showed that it is willing to step into the currency markets but the interventions haven’t proven effective in stemming the yen’s slide. Over the past 12 months, the yen has plunged 10.3% against the dollar.

The US releases ISM Services PMI for December later today. Over the past two years, the PMI has pointed to expansion in services every month but two, pointing to prolonged growth in business activity. The PMI is expected to improve to 53.0, following 52.1 in November. The 50 level separates contraction from expansion.

USD/JPY Technical

• USD/JPY tested resistance at 158.33 earlier. Above, there is resistance at 159.00
• There is support at 156.61 and 155.56

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