Intervention Risks Growing

The threat of fresh FX intervention from Japanese authorities is growing stronger this week. USDJPY has traded back up to just shy of the level that sparked intervention back in April, fuelling speculation of fresh action. The latest push higher comes on the back of the recent BOJ meeting which saw the bank keeping policy unchanged for now. The bank noted that it was discussing options around reducing monthly bond purchases, with details to be announced at the July meeting. However, traders were seemingly a little disappointed with the BOJ’s cautious approach and Yen has been punished subsequently.

JPY CPI Rises

Overnight, the latest BOJ core CPI reading was seen jumping to 2.1% from 1.8% prior, above the 1.9% the market was looking for. The data adds to the view that the BOJ is gearing up to tighten policy next month with some traders suspecting the bank will announce a surprise rate hike alongside a reduction in bond purchases. The question now is whether Japanese authorities will be forced to intervene ahead of that meeting given the ongoing weakness in JPY?

US Data on Watch

With a slew of US data due across the week, any fresh USD upside could have serious implications for the pair, leading to fresh intervention action. On the other hand, if we see any USD downside as a result of data weakness this might help avoid a fresh intervention event. Nevertheless, high volatility risks are seen if we persist around current levels.

Technical Views

USDJPY

For now, the pair is sitting just below the 160.27 highs. While above 154.74 and within the bull channel, the focus is on a continuation higher with the bull channel highs the next target. However, we are seeing strong bearish divergence in momentum studies flagging potential reversal risks.

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