USDJPY: On intervention watch

• Yen weakens to multi-year lows
  

• Markets on intervention watch
  

• BoJ decision & US data in focus

• Major resistance at 161.8 golden Fib levels

• Key levels of interest at 155.00, 154.20 & 21 day SMA
  

The Yen’s weakness to multi-year lows has left investors on high alert for possible currency intervention.

On Wednesday morning, USDJPY was a whisker away from the psychological 155 level as the dollar gained across the board. It’s worth noting that back in March, there was much discussion around Japanese authorities potentially intervening when the USDJPY pushed above 152. Since then, prices have jumped another 300 pips…

Just yesterday, the Japanese Finance Minister issued his strongest warning of the chance of intervention.

So essentially, more volatility could be on the horizon for the USDJPY – especially with the upcoming Bank of Japan rate decision and key US data on Friday.

Shedding more light on the above:

  1) Bank of Japan rate decision

No Changes to monetary policy are expected, so the focus will be directed towards the BoJ’s inflation projections for the next three years. Investors will also be watching how hawkish/dovish Governor Kazuo Ueda sounds.

• Should the BoJ strike a dovish note, this is likely to weaken the Yen further.

• A hawkish-sounding BoJ that hints at a potential hike in June could boost the Yen.

Traders are currently pricing in a 40% probability of a 10-basis point hike by June with this jumping to 97% by July.

Note: April’s Tokyo CPI data will also be published on Friday and could influence expectations around what actions the BoJ takes beyond April.

  2) US Q1 GDP & March PCE report

These incoming US data may impact bets around when the Fed will start cutting rates in 2024. Ultimately, if these reports support the case for “higher for longer” rates, the dollar may appreciate and vice versa.

Focusing on the technicals…

From an Elliot wave perspective, USDJPY is in the 3rd impulse wave from the March 11th low at 146.483 and has the 161.8 golden fib level as a measured move objective.

The Relative Strength Index (RSI), an indicator computed to highlight overbought zones a condition where the market is saturated with buyers-, shows that USDJPY is overbought. This could limit upside gains with the threat of potential currency intervention inviting bears back into the scene.

• A solid breakout and daily close above 155.00 may open a path toward the 161.8 golden Fibonacci level at 157.44

• Should prices remain capped below 155.00, this may trigger a selloff towards 154.20 and the 21-day SMA at 152.96

Bloomberg’s FX model forecasts a 77.5% chance that USDJPY will trade within the 151.99 – 157.32 range over the next one week.