Yen seen preparing for possible leap

The Japanese Yen continues to struggle against the USD, with the pair coiling below the key level of 150 and threatening a breakout higher. Dovish remarks from BoJ Governor Ueda have pushed the pair higher, and intervention from Japanese authorities is likely as key price/yield levels are now close to or touched.

On Monday, the Japanese Yen gave ground against the USD, trading at 149.80. Ueda’s dovish remarks have pushed the Yen higher, after the BoJ governor said the bank will remain “patiently maintaining its current easy policy”. This came after the release of Japanese inflation data for September revealed a slowdown in price rises.

The National Consumer Price Index fell to 3.0% from 3.2% a year ago. National CPI ex-Fresh Food fell to 2.8% from 3.2% year-on-year (YoY). Whilst still above analysts’ estimates of 2.7%, it was the first time since August 2022 that the index had fallen below 3.0%. National CPI ex Food and Energy fell to 4.2% from 4.3% YoY.

The yield on the 10-year Japanese Government Bond (JGB) has risen to close to the 1.0% YCC threshold. If it touches 1.0%, the BoJ will probably ease policy further to bring it down, pushing the Yen even lower.

Complicating matters further, the USD/JPY briefly rose above the key 150 threshold on Monday. This is the level where the Japanese Ministry of Finance (MoF) has historically intervened in markets to strengthen the Yen so that imports do not become unaffordably expensive.
Due to the market’s view that the MoF usually intervenes to defend 150, it could lead to selling pressure as the idea becomes a “self-fulfilling prophecy,” according to analysts. The market assumption that 150 constitutes the MOF’s line of defense can turn into a self-fulfilling prophecy.

However, if it breaks above 150, it could move much higher. The fact that it broke above 150 on Monday is a sign that from the market’s perspective, the exchange rate is much more than 150.

The Japanese authorities are caught between a rock and a hard place. If they keep the YCC above 150, they will be forced to accept a weaker Yen. But if they keep it below 150, they will have to accept a much stronger Yen.