U.S.-Japan Joint Intervention Puts Markets on Hold

Forex

Summary:

The U.S.-Japan joint intervention has provided short-term support for the yen, but the history of the April intervention shows that the impact of intervention is limited without sustained policy support. If markets continue to price in further Bank of Japan rate hikes before the end of the year, the yen could gain medium-term support.

SELL USDJPY

EXP

PENDING

157.495

Entry Price

152.305

159.747

157.025 -0.390 -0.25%

Pips

PENDING

152.305

Exit Price

157.495

Entry Price

159.747

Fundamental Analysis

Since Japan was suspected of intervening to support the yen on July 30, USD/JPY has entered a sharp sell-off. In just two trading sessions, the pair plunged by around 600 pips. Early Monday, USD/JPY fell another 260-plus pips after the market opened. The move was driven by confirmation from Japan’s Ministry of Finance that it had conducted a joint foreign exchange intervention with the U.S. Treasury to buy yen. Japan also stated that it “will not hesitate to take further action.” This marked the first joint exchange-rate intervention by Japan and the United States since the two countries coordinated to weaken the yen following the Great East Japan Earthquake in 2011.

The U.S.-Japan joint intervention is aimed at preventing the yen from falling to a new 40-year low and limiting the spillover effects of a sell-off in the yen and Japanese government bonds on global markets—for example, preventing further upward pressure on already elevated U.S. Treasury yields.

Japan’s Ministry of Finance said in a statement that Friday’s joint intervention with the U.S. Treasury was “intended to address excessive volatility and disorderly movements in the yen over the past several months.”

The statement added that “the Ministry of Finance remains vigilant and is maintaining close communication with the U.S. Treasury, and will not hesitate to conduct further joint intervention.” This was the first joint intervention since 2011.

According to Bank of Japan data, Japan may have sold approximately $58.97 billion to purchase yen during its intervention in the New York market on Thursday, before confirming the joint action with the U.S. side on Friday.

The U.S.-Japan joint intervention marks a significant strengthening of coordination between the two countries on exchange-rate policy. Combined with the U.S. Treasury Secretary’s calls for further rate hikes by the Bank of Japan, the BOJ’s clearest early signal yet of a potential rate hike, and simultaneous intervention by South Korea, these developments indicate that regional policy coordination is intensifying.

In the short term, these measures have provided support for the yen. However, the history of the April intervention shows that intervention alone has limited effectiveness without sustained policy support. A genuine turning point for the yen will still depend on the pace of BOJ rate hikes and changes in expectations for Federal Reserve rate cuts. If markets continue to expect the BOJ to raise rates further before the end of the year, the yen could receive medium-term support.

Of course, in the short term, the upward momentum of USD/JPY has already been disrupted by the U.S.-Japan joint intervention. Therefore, from a short-term trading perspective, it may be more prudent to wait for USD/JPY to rebound before entering a short position.

Technical Analysis

On the daily chart, two consecutive trading sessions of declines have pushed USD/JPY back into its broad consolidation range, with the pair currently near the upper end of the range and therefore still having considerable downside room. In addition, USD/JPY is trading near the lower boundary of its rising channel. A break below this support could trigger another round of short-term declines.

In terms of technical indicators, both the baseline and conversion line of the Ichimoku Cloud are clearly trending downward, indicating strong bearish momentum in USD/JPY. The current candlestick is also trading significantly below both lines, suggesting that the pair may see a modest short-term rebound.

On the ADX indicator, the +DI and -DI have moved in opposite directions after crossing, with the +DI falling to 14.47. This suggests that USD/JPY may experience a rebound following its recent modest decline. U.S.-Japan Joint Intervention Puts Markets on Hold_1

U.S.-Japan Joint Intervention Puts Markets on Hold_1

U.S.-Japan Joint Intervention Puts Markets on Hold_2

Trading Recommendation

Trade Direction: Short

Entry: 157.495

Target: 152.305

Stop Loss: 159.747

Support: 155.291, 152.499

Resistance: 157.495, 159.00, 160.527

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