USD/JPY finds well timed bounce off key technical assist for now

The Japanese yen remains a key focus in markets this week after having seen Tokyo officials more than likely performed a ‘rate check’ on Friday last week. That was enough to alleviate the pressure on the currency with USD/JPY stumbling down from 159.00 to hit a low of 153.30 yesterday.

However, the drop yesterday was arrested by a key technical support level. Of note, buyers stepped up to muster a defense at the 100-day moving average (red line) in fighting back against intervention risks from Japan’s ministry of finance (MOF). So, what’s next for the pair?

The dollar side of the equation is also helping to pin the pair lower since Friday, that as the greenback tumbled across the major currencies space. That also led to precious metals being sent into overdrive with gold and silver still hanging at the highs today after the parabolic jump – more so than it was before – to start the week.

However, are we fast approaching the apex of these surging and momentous market moves? When something goes up too far, too fast, there’s typically always some point of pullback/reckoning. So, just be wary of that.

As for the yen side of the equation, it’s a tough one. Right now, it is all about reading the tea leaves. After the ‘rate check’ last week, it is more than likely to expect the MOF to step in with actual intervention at some point.

The question is, will that change anything in the big picture and when market players view the structural outlook?

Not quite.

If Takaichi continues to hold premiership and progresses with her more expansive fiscal policies, that will continue to keep the pressure on the Japanese currency and bond market. At the same time, she wants the BOJ to take a step back from raising interest rates further. So, the Takaichi trade will still be well and truly on. And that means markets will continue to look for opportunities to punish Japan’s worsening fiscal position.