The USDJPY exchange rate crashed lower Thursday as investors speculated about a possible Bank of Japan intervention.
USDJPY – Daily Chart
The USDJPY slumped to the previous resistance level of 158.40 and found a slight bounce. This level is now a critical point, with the possibility of a more significant correction to as low as 152. The future of the USDJPY exchange rate is uncertain, necessitating caution and strategic planning.
US inflation was softer than expected, leading investors to bet on an early move in interest rates. The market has now increased its potential for a Federal Reserve rate cut in September from 70% to 85%. This potential rate cut underscores the need for proactive decision-making.
Investors were also suspicious of a BOJ intervention due to the size of the move, and BOJ FX official Masato Kanda refused to rule out that scenario. Kanda had said that recent yen moves have been dominated by speculation and have hurt household spending. When questioned about a BOJ intervention, he said it would be reported at the end of the month if that were the case.
Japan’s central bank last intervened in May, and analysts said that 160 was a line in the sand for the central bank.
“There’s no doubt the MOF intervened,” said Daisaku Ueno, chief currency strategist at Mitsubishi UFJ at the time, noting 160 yen per dollar as their “final defence line.”
Today’s plunge in the exchange came after the price squeaked to almost 162 last week.
The USD vs JPY rate could move lower again as investors increase their expectations for the Fed to reduce its benchmark interest rate in September and December.
Buying the currency pair after two successive interventions at the 160 level is also foolish. With no significant data ahead for the US or Japan, that would be another reason that profit-taking and new shorts could emerge.
