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USD vs JPY: more volatility in this key FX pair ahead this week

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We’re seeing huge volatility in the Japanese Yen at the start of the week. In early trading, the JPY experienced significant volatility, rallying strongly after reaching its lowest point in 34 years. I’m booking a holiday to Japan soon!

Initially dropping below the 160 per US dollar mark for the first time since 1990, the yen’s decline was attributed to thin liquidity due to a public holiday in Japan. However, it has since staged a partial recovery, hinting at possible intervention by Japanese authorities to bolster the currency. Meanwhile, equities in East Asia are generally seeing supportive sentiment.

After hitting fresh multi decade highs of above 160, USDJPY sharply retreated spectacularly, plunging lower by over 500 pips. The move suggests that Japanese authorities have finally intervened in the market after plenty of anticipation over recent weeks.

On the back of the JPY’s continued depreciation post-BOJ minutes (from the March meeting), many have warned over the growing risk of intervention. Indeed, both the BOJ and Japanese government have been clear that they are watching FX markets and stand ready to act as necessary, though up until the end of last week, JPY depreciation looked to have gone unchecked.

It is always hard to be precise with Japanese intervention, as the BOJ can work through proxies in the Japanese banking sector. FX analysts in Southeast Asia this morning said they strongly suspected that the BOJ is no intervening and that the drop in the JPY was too far and too fast for tastes in Tokyo.

Public holiday in Japan on Monday

Japanese traders are off for the bank holiday today, meaning any actions will have been amplified by thinner holiday volumes. Japan’s top currency official Masato Kanda has so far refrained from commenting on the moves in FX markets, telling reporters “no comments for now”.

Traders will now be awaiting details of the move and the actions taken particularly with regard to assessing whether this was a one off move or the beginning of a campaign of action. If the latter, then USDJPY looks vulnerable to further downside. If the former, then we could still see a fresh push higher in the pair, particularly if incoming comments at the FOMC and incoming US data this week drives fresh USD bullishness.


What about the technical picture on the USD/JPY?

The reversal lower has seen the pair trading back down below the 158.28 and 156.42 levels, back inside the bull channel once again. The market is currently stalled at support at 154.89 at time of writing on Monday. Should we break below here, 2151.81 and the bull channel lows will be the next support to note.

Japan will release industrial production, employment, and retail sales data in a holiday-shortened week. The minutes of the March Bank of Japan meeting will also be overshadowed by Friday’s BOJ decision and press conference.

It is going to be a busy week for forex traders as we have a Federal Reserve meeting concluding on Wednesday, US payrolls data coming out on Friday, and European inflation data hitting the market all through the week.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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