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USDJPY Substantially Lower Amid Strong Indications of MOF Intervention

FOREX
  • The Bank of Japan’s decision to downplay the yen’s impact on inflation last Friday prompted a further sharp weakening of the currency. This culminated in USDJPY breaching the 160.00 overnight, amid thin liquidity due to the Japanese holiday. This took the rally from Friday’s lows to over 500 pips to reach a high of 160.17, closely matching the April 1990 peak.
  • However, the subsequent aggressive move lower has somewhat justified that market’s cautious rhetoric, with strong indications that the MOF may have intervened to stabilise the JPY. There has been no official confirmation on intervention from Japanese authorities, with top currency official Kanda stating he has ‘no comment for now’.
  • The bulk of the move lower came ahead of the European open, with USDJPY moving from around 159.50 to 155.60. A second wave of selling came just after 0800BST, where the pair traded down to a low of 154.54, just shy of initial key support at 154.01, the 20-day EMA.
  • As a result, the USD index resides 0.20% lower, in fitting with modestly lower US yields. Stock markets trade marginally in the green, which assists the likes AUD (+0.35%) and NZD (+0.39%) which outperform in G10. Initial readings of Eurozone inflation have had little impact on EURUSD which hovers just above 1.07.
  • With Aussie retail sales and China PMIs overnight, attention will be on a developing bullish phase for AUDUSD. Resistance at 0.6526, the 50-day EMA, has been breached and the clear break highlights a stronger reversal that signals scope for a climb towards 0.6644, the Apr 9 high.
  • Key attention this week will rest on Wednesday’s Fed meeting and press conference, as well as Friday’s release of NFP.
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