USD/JPY Reaches 160.87 High, Stabilizes at 160.40

USD/JPY Reaches 160.87 High, Stabilizes at 160.40

Key Points:

  • USD/JPY Traded around 160.40 after retreating from a 37-year high of 160.87, driven by Japanese verbal interventions.
  • Finance Minister Suzuki and Chief Cabinet Secretary Hayashi stress stabilising the yen’s rapid depreciation.
  • Anticipation of Core PCE Price Index data; expected to drop, possibly prompting Fed rate cuts.

The USD/JPY pair traded around 160.40 during the Asian session on Thursday, following a retreat from its highest level since 1986 at 160.87. Japanese authorities largely attributed this correction to their verbal interventions to stabilise the yen’s rapid depreciation.

Japanese Finance Minister Shunichi Suzuki made a significant statement on Wednesday, asserting that the government “will take appropriate steps on excessive FX moves.” While Suzuki refrained from commenting on specific forex levels or outlining potential interventions, his emphasis on the importance of stable currency movements that reflect economic fundamentals was clear. Chief Cabinet Secretary Yoshimasa Hayashi echoed this stance, reinforcing the government’s commitment to maintaining a balanced forex market.

Impact of US Inflation Data

Traders’ anticipation of the upcoming Core PCE Price Index inflation data, scheduled for release on Friday, can partly explain the US Dollar (USD) depreciation. This index, considered the Federal Reserve’s (Fed) preferred measure of inflation, is projected to decrease year-over-year to 2.6% from the previous 2.8%. Market participants hope that easing inflation signs will prompt the Fed to consider rate cuts sooner than expected.

Despite the potential for a weaker dollar driven by lower inflation expectations, the downside for the Greenback might be limited. This is due to the higher yields on US Treasury bonds, which continue to attract investors. As of the press time, 2-year and 10-year Treasury yields stand at 4.74% and 4.33%, respectively. These elevated yields support the USD, counterbalancing some bearish pressure from anticipated lower inflation.

USD/JPY  Technical Outlook

From a technical perspective, the USD/JPY pair’s retreat from its 37-year high suggests a potential period of consolidation. Traders will closely watch the pair’s movement around the 160.40 level for further direction indications. If the pair maintains support around this level, it could signify resilience despite the verbal interventions and inflation data impacts.

The USD/JPY’s recent trading activity reflects a complex interplay of Japanese verbal interventions, anticipated US inflation data, and the influence of Treasury yields. While Japanese authorities aim to stabilise the yen, traders also focus on US economic indicators that could influence the Fed’s policy decisions. The higher US Treasury yields provide underlying support for the USD, suggesting that any downward movement may limited. Investors will continue to monitor these factors closely as they seek to navigate the evolving forex landscape.