Japanese Yen gains after BoJ signal of intervention, what could this mean for USD/JPY?

Japanese Yen, USD/JPY, Bank of Japan, Intervention, Technical Analysis – Market Update

• The Japanese yen rose on Wednesday as the Bank of Japan signaled intervention
• This could be a sign that the policy may be lax for some time.
• BoJ hasn’t always been successful with intervention, will USD/JPY fall?

Japanese Yen Gains as Possible BoJ Intervention

The Japanese yen gained 1.08% against the US dollar on Wednesday, a remarkable achievement considering the JPY’s continuous depreciation since 2021. What was the reason for this move? Reports crossed the strings that the Bank of Japan conducted rate checks, opening the door to market intervention for the first time since 1998. The merchants were scared. Should they be?

Prior to this event, various Japanese government and monetary policy officials have been offering verbal jabs against the currency for some time. There was no physical activity. At the end of the day, BoJ occupies a very different position than its major peers. The central bank continues to implement over-lax policy: interest rates are negative, quantitative easing remains in place and the yield curve remains in control.

Meanwhile, nearly every other major central bank is tightening policy. This widening gap between them and Japan is likely to be against the Japanese yen. All you have to do is look at the government bond yield spread to catch the story. Wednesday’s move could be seen as the next step by authorities to help contain the yen.

Strangely enough, a push for intervention could also be interpreted as a sign that the Bank of Japan may keep policy lax. Former board member Goushi Katoka noted that at the earliest, a BoJ policy change could come by the middle of next year. It appears that in the interim, the government may have to use other measures to help contain the yen.

Historically speaking, the Bank of Japan has not always been successful with intervention. From about January 1999 to April 2000, the central bank intervened to buy the yen at least 18 times (once with some help from the Fed and the ECB) to help curb its appreciation. Currency still received. Granted, this was an instance when the yen was very strong, but a central bank needs credibility to be effective.

USD/JPY Daily Chart

On the daily chart, USD/JPY is eyeing a rising trend in the near term since August. Negative RSI divergence is present, indicating that the upward momentum is decreasing. It can open a lower turning door. A breakout under this line would highlight the 100-day simple moving average (SMA) which could restore major upside focus down the road. Otherwise, clearing of 144.99 exposes 1998 high of 147.65.

Chart created in Trading View

— Written by DailyFX.com Strategist Daniel Dubrovsky

To contact Daniel, use the comment section below or@ddubrovskyFXon twitter