Japanese yen’s drop sparks MOF warning

The Japanese yen has stabilized on Tuesday, after taking a nasty tumble at the start of the week. In the European session, USD/JPY is trading at 136.91, down 0.35%.

USD/JPY punches above 137

The US dollar went on a tear on Monday, as an excellent non-farm payroll report paved the way for the Fed to proceed with another supersize 75bp increase at the July meeting. CME’s FedWatch has pegged a 75bp move at 90%, with a 10% likelihood of a full 100bp increase. The Fed is in an ultra-aggressive mode in its battle against inflation and clearly willing to deliver 75bp salvos. It wasn’t long ago that a 50bp hike was considered a massive move; now such an increase would barely raise an eyebrow.

The US releases inflation on Wednesday, which could have a sharp impact on the dollar. Headline CPI is expected to rise from 8.6% to 8.8%, and if inflation does move higher, it would likely cement a 75bp move from the Fed and send the dollar higher. Conversely, a surprise drop in inflation would raise hopes that inflation has peaked and the Fed might resort to a 50bp increase, sending the dollar lower.

The Japanese yen continues its march towards the symbolic 140.00 line, and fell to 137.75 on Monday after USD/JPY soared by 1.01%. This triggered a response from Japan’s Finance Minister Suzuki, who expressed his concern about the exchange rate at a meeting with US Treasury Secretary Yellen. For her part, Yellen stated that she did not discuss currency intervention with Suzuki, and it appears that Suzuki is engaged in the usual jawboning whenever the yen takes a fall. BoJ Governor Kuroda’s stance doesn’t seem to be helping the yen at all, as he stated on Monday that the central bank would take additional monetary easing steps as necessary in order to boost the fragile economy.

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USD/JPY Technical

•  USD/JPY is putting pressure on support at 1.3684, followed by 135.82
• There is resistance at 137.60 and 138.62

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