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It has finally happened: for the first time in the last 24 years, the Japanese authorities conducted a currency intervention, provoking strong price turbulence not only for the USD/JPY pair, but also for all other crosses involving the yen.
Rumors about the impending intervention – not verbal, but the most real – have been going around for a long time, over the past two months. But they started talking about it seriously only in September, when the USD/JPY pair rushed up again and broke the 140th mark. Most experts said that the country’s authorities will simply have to react to the current situation. The only question was where exactly the conditional “red line” passes, at the intersection of which officials will decide to conduct a currency intervention. On this occasion, there was a discussion in absentia among analysts – some stated that this would happen if the USD/JPY pair gained a foothold above the 145.00 mark, while others assured their clients that the authorities would maintain a wait-and-see position until the pair began to approach the target of 150.00.
Last week, the first insiders appeared on this issue. Thus, information was published in the Japanese press that the central bank conducted an audit of exchange rates. According to a number of experts, this may mean preparing for currency interventions. The insider appeared after the meeting of Bank of Japan Governor Haruhiko Kuroda with Prime Minister Fumio Kishida. Commenting on the results of the meeting, the head of the central bank said that “too rapid a change in the value of the currency increases uncertainty and complicates the work of companies.”
In other words, today’s decision is not sensational. Of course, “at the moment” the Japanese authorities, of course, provoked strong volatility in the USD/JPY pair in favor of the yen. But if we talk about the medium term (not to mention the long term), then there is no need to rush to conclusions. The Japanese currency has used an important trump card, while all other fundamental factors are playing against it. Therefore, the effect of the decision may be short-term.
Just look at the reaction of traders of the USD/JPY pair: the price collapsed by more than 500 points in just a few hours. Initially, the pair reached its peak, having been designated at around 145.90, after the announcement of the results of the BOJ meeting. The central bank maintained the status quo in terms of monetary policy parameters and voiced the already familiar rhetoric of a dovish nature. But almost immediately after the announcement of the results of the central bank’s September meeting, it became known that the Japanese government had intervened in the situation on the foreign exchange market. The corresponding statement was made by the Deputy Minister of Finance of Japan Masato Kanda. He confirmed the currency interventions, saying that “the authorities have taken decisive action in the foreign exchange market.” After this statement, the pair dropped sharply to the base of the 140th price level.
However, as soon as the downward momentum began to fade, bulls on the pair entered the game again. As a result, at the moment, traders have won back almost 200 points, rising to the 142nd figure.
The upward pullback was provoked by the rather vague comments of Japanese Finance Minister Shunichi Suzuki. First, he refrained from commenting on the size of the intervention. Secondly, he refused to answer an equally important question – was it a single action or will the country’s authorities continue to strengthen the position of the national currency? Suzuki only added that the government is concerned about excessive fluctuations in exchange rates, “which cannot be ignored.”
I note that at the beginning of this year, the USD/JPY pair was trading around 114-115 figures. That is, in less than nine months, the price increased by almost 3,000 points before the Japanese authorities became concerned about the situation. From this it follows that a kind of “red line” for the Ministry of Finance runs at the level of 145-146 figures.
It should be recalled here that the last time Japan intervened to support the national currency was 24 years ago, in 1998, when a large-scale financial crisis provoked a sell-off of the yen and a rapid outflow of capital. At that time, the USD/JPY pair also approached the 146.00 mark. Of course, we can talk about a coincidence, but, in my opinion, this particular target acts as a red rag for the Japanese government.
Summarizing all of the above, we can assume that the latest events are unlikely to reverse the USD/JPY trend. Please note that bears on the pair could not gain a foothold below the support level of 142.00 (the lower line of the Bollinger Bands indicator on the daily chart). At the same time, it should be noted that bulls are most likely to take profits when approaching the 145.00 mark. Obviously, this target (or rather, consolidating over it) can “turn out” by conducting a repeated currency intervention. Consequently, the USD/JPY pair is likely to trade in the range of 142.00-145.00 in the near future.
Thus, from the current positions, we can consider longs with the first (and so far the main) target of 143.50 – this is the upper line of the Bollinger Bands on the four-hour chart, which coincides with the upper boundary of the Kumo cloud on the same timeframe. In general, it is advisable to use downward declines to open long positions – but do recall that the safe ceiling of the range is the 145.00 mark.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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