USDJPY Breaks Fresh Highs

The US Dollar continues to push higher as traders await key inflation data tomorrow. Yesterday, USDJPY broke out to its highest level since 1986, moving above the level at which we last saw Japanese authorities intervene to send JPY higher. Japanese authorities continue to reaffirm their message on rates saying they will not hesitate to take action against excessive FX moves.

Verbal Warnings

In the last 48 hours we’ve heard from a slew of key Japanese names including top currency official Kanda, Fin Min Suzuki as well as chief cabinet secretary Hayashi. Despite the ongoing jawboning, USDJPY remains well bid and traders are now bracing for fresh intervention.

US Inflation Data on Watch

Tomorrow’s US core PCE reading will be key for the pair. If we see a downside surprise, this should fuel an uptick in September easing expectations, sending USD lower. If we see a meaningful move lower in USAD this could help alleviate the need for intervention. However, if tomorrow’s data comes in above forecasts, diluting September easing chances and pushing USD higher, this could be the last straw leading to fresh intervention such as we saw in April.

BOJ Expectations

The bigger issue for the BOJ is how to sustainably drive JPY higher, given that previous interventions and even a record rate hike haven’t helped. Looking ahead, traders are widely expecting the BOJ to announce a reduction in bond purchases in July, however risks are now tilting towards a further rate hike also which should cause some near-medium term strength in JPY.

Technical Views

USDJPY

The rally has seen price breaking out above the prior 2024 highs around 160.27. With momentum studies bullish, while above this level the focus is on a test of the bull channel highs next. To the downside, 158.28 will be the key support to watch with the bull channel lows just beneath. 

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