USDJPY Testing Intervention Levels

USDJPY is on watch this week as the pair continues to push higher amidst intervention warnings from Japanese officials. Rate is now above the 160 level which has sparked previous interventions and volatility risks remain elevated consequently. A hawkish shift in traders’ Fed outlook on the back of the June FOMC is the primary driver behind the USD rally we’re seeing. Market pricing for a Fed hike by year end has jumped to above 80% from below 60% prior to the meeting, driven by the updated dot plot forecasts which show that nine out of eighteen policymakers now see at last one hike this year (up from zero in march) and five see at least two hikes.

Japanese Officials Give Warnings

With the JPY now at its weakest level in almost 40 years, jawboning from Japanese officials is on the rise. Japan Fin Min Katayama warned that authorities stand to ready to “respond” at any time. Notably, Japan’s top FX diplomat Atsushi Mimura (who speaks far less frequently than Katayama and typically carries more weight) also warned that authorities are prepared to take “decisive action” against persistent Yen selling. Similar warnings in the past from Mimura have preceded actual intervention and traders are wary that a move could be imminent this week, warranting added caution around current levels.

Technical Views

USDJPY

For now, USDJPY is stalled at the 161.95 level, capped by the 2024 high-watermark. With the bull trend intact, focus is on a breakout to fresh highs with the bullish outlook holding while price remains above the 157.85 level and the bull channel lows.