It will take time for the yen to truly strengthen.

Forex

Central Bank

Summary:

Official intervention caused the yen to rebound, but a real trend reversal often requires substantial changes in fundamentals and more time.

BUY USDJPY

EXP

EXPIRED

155.500

Entry Price

160.000

154.500

156.865 +0.915 +0.59%

Pips

EXPIRED

154.500

159.253

Exit Price

155.500

Entry Price

160.000

Fundamentals

On Monday, Japan's Ministry of Finance confirmed a joint foreign exchange intervention with the U.S. Treasury, purchasing $59 billion in yen. This coincided with the Bank of Japan reinforcing its interest rate hike signals, supporting a stronger yen, with the dollar/yen exchange rate briefly falling to near 155.0. Meanwhile, the dollar weakened due to lower-than-expected GDP growth, a slowdown in PCE, and easing tensions in the Middle East.

However, the situation in the Middle East has led to rising inflation and expectations, prompting major central banks worldwide to adopt hawkish interest rate policies. Meanwhile, the Bank of Japan's policy normalization process has been slow, and the persistent interest rate differential disadvantage has kept the yen under pressure. Historical experience shows that a true trend change often takes time, and a more sustained decline in the USD/JPY pair requires substantial changes in fundamentals. The future trend still depends on the pace of interest rate hikes by the Bank of Japan.

Currently, Japan's inflation is mainly driven by rising energy prices. The situation in the Middle East remains highly uncertain, which may lead to lower inflation expectations and limit the Bank of Japan's room for interest rate hikes. As a result, the yen is likely to remain relatively weak for an extended period.

Technical aspects

It will take time for the yen to truly strengthen_1

Looking at the daily chart, USD/JPY continued to rise, once breaking through 164.0, which has long exceeded the range of intervention by the Japanese authorities. The momentum of the yen shorts does not seem to have weakened. Although the joint intervention by the US and Japan triggered a sharp drop in USD/JPY, clearing out some yen shorts, the trend has not changed, and the exchange rate may rise again.

In terms of trading strategy, you can try going long when the price retraces to around 155.0, with a target of around 160.0 and a stop loss below 155.0.

Trading advice

Trading direction: Long

Entry position: 155.52

Target price: 160.00

Stop-loss level: 154.50

Downside support levels: 155.00/152.20

Upward resistance levels: 162.60/160.00

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