USD/JPY – Yen surge likely driven by intervention

The Japanese yen has edged lower on Tuesday. USD/JPY is trading at 158.42 in the European session, up 0.28% on the day at the time of writing.

BoJ likely intervened after US inflation report

The Bank of Japan has been playing a cat-and-mouse game with currency speculators looking to take advantage of the yen’s descent. The BoJ is suspected to have intervened in the currency markets last Thursday to the tune of around $22 billion, based on an analysis of BoJ accounts. The suspected intervention occurred soon after the US released the June inflation report. The weaker-than-expected inflation reading sent the US dollar reeling against the major currencies and the BoJ likely intervened while the yen was in the midst of strengthening against the dollar.

This would represent a new tactic for the Bank of Japan, which in the past has intervened when the yen was on a downswing. The new tactic caught the markets by surprise as the BoJ is looking for new ways to deter currency speculators. The latest intervention propelled the yen from 161.58 against the dollar to 157.44, a massive gain of 2.4% for the Japanese currency, which was also boosted by the soft US inflation report.

Japan’s chief currency diplomat, Masato Kanda wouldn’t confirm or deny that Tokyo had intervened, as officials are intent on keeping market participants in the dark about currency interventions. We won’t know for sure that the BoJ intervened until the end of the month, when the BoJ publishes official intervention data. Although previous interventions have provided short-term relief only, Japan will likely continue to resort to interventions in a bid to defend the yen.
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USD/JPY Technical

• USD/JPY is testing resistance at 158.57. Above, there is resistance at 159.13
• There is support at 157.88 and 157.32

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