USD/JPY headed for a losing week

USD/JPY has edged higher, trading at 147.46 in Europe, up 0.11%. On Thursday, USD/JPY rose as high as 147.87, close to the symbolic 148 line which has held since October 2022.

Investors continue to focus on Japanese inflation releases, which indicate that inflation is above the Bank of Japan’s target of 2%. Core CPI has hovered above the 2% mark for some 16 months, but that hasn’t been enough to persuade policy makers at the BoJ that inflation is sustainable.

After decades of deflation, perhaps the mindset at the central bank isn’t ready for a dramatic shift in policy in response to high inflation. There have been some remarks from BoJ members acknowledging that inflation is moving higher, but the official BoJ line remains that the current bout of high inflation is not sustainable and there are no plans to normalize the Bank’s ultra-loose policy.

The Japanese yen is in a deep slump and fast approaching a possible red line at the 150 level. Investors remember all too well the BoJ’s intervention in the currency markets in order to prop up the yen, and this week’s verbal intervention may have been a sign that actual intervention in the form of buying massive amounts of yen may not be far off.

Vice Finance Minister Masato Kanda, who is Japan’s currency diplomat, warned that the authorities “will not rule out any options on currencies if speculative moves persist” and added, “It is important for currency moves to reflect fundamentals”.  We have heard these threats before, but Kanda has shown that he’s willing to press the intervention trigger. The million-dollar question is what Tokyo considers its line in the sand. If the yen continues to lose ground, intervention will become more likely.

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USD/JPY Technical

• USD/JPY is testing support at 147.58. Below, there is support at 146.01
• 148.93 and 150.50 are the next resistance lines

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