In September, the Japanese government and the Japanese central bank intervened in the forex market with the aim of strengthening the yen. Earlier, the USD/JPY exchange rate had rallied close to the JPY 146 per USD level, reaching its highest level since 1998, which worried the Japanese authorities. This morning, the USD/JPY exchange rate approached the levels again, before the intervention.
Government intervention to strengthen the Japanese currency
Tonight, Japanese Finance Minister Shunichi Suzuki told reporters in Tokyo that the government remains ready to take the necessary responses to excessive currency movements. He added that he would continue to keep a close eye on forex movements, as stability is important and sudden unilateral movements are not desirable. The difference in interest rates between the U.S. and Japan is not the only factor affecting forex movements, there are various factors behind rate changes, Suzuzki added in quotes published by Bloomberg news agency. Last month's intervention had some impact on speculators, the Japanese finance minister pointed out. Japan spent $19.7 billion on the September currency intervention, Bloomberg reported.
Source: Conotoxia MT5, USDJPY, H4
Japan's fight over the yen exchange rate and bond yields
A cycle of interest rate hikes is underway in developed economies around the world, but not in Japan. The Japanese want to keep interest rates close to zero at all costs, and still want to control their bond yield curve. Investors, on the other hand, probably want to necessarily get rid of as many Japanese bonds as possible, as long as their prices are jacked up by the central bank. As a result, Japanese government bonds rose today after the central bank increased its planned fourth-quarter debt buying. The Bank of Japan announced Friday it would increase its purchases of bonds with maturities above five years in the fourth quarter 2022, Bloomberg reported.
USD/JPY technical analysis
Source: Conotoxia MT5, USDJPY, D1
In light of possible currency interventions, i.e. factors typically outside the market, the importance of technical analysis may be less. Nevertheless, looking at the USD/JPY chart, we can see a significant expanding wedge formation, where the market seemed to turn around in the area of its upper limit, as well as a rising wedge formation. In addition, the RSI relative strength indicator has retreated from overbought levels, but may be close to drawing a potential divergence. Short-term support may also come from the 20-session average, above which the market was in an earlier trend.
Can changes be expected from the Bank of Japan's action?
Many people wonder why the Bank of Japan is not going to change its monetary policy, as other central banks around the world have changed it, but would try to buy time with currency interventions. However, there is no clear answer to this question, for believing the BOJ's announcements, this seems l not changing soon. According to National Australia Bank analysts, the December forecast for USD/JPY was raised to JPY145 from JPY133. "We are forced to abandon our earlier view that we will see changes in the way the BOJ's interest rate and yield curve control (YCC) policies work this year," - NAB analysts quoted by Bloomberg wrote. BOJ Governor Kuroda has made it clear that the policy stance of unchanged or lower interest rates will be maintained, probably for another two to three years.
Did you know that CFDs allow you to trade on both falling and rising prices?
Derivatives allow you to open buy and sell positions and thus trade on rising as well as falling quotes. At Conotoxia, you can choose from CFDs on more than 100 currency pairs. For example, if you want to find a CFD on the USD/JPY, you only need to follow 4 simple steps:
- To access Trading Universe - a state-of-the-art hub of financial, information, investment and social products and services with a single Smart Account, register here.
- Click "Platforms" in the "Invest&Forex" section.
- Choose one of the accounts: demo or live
- On the MT5 or cTrader platform, search for the CFD currency pair you are looking for and drag it into the chart window. Use one-click trading or open a new order with the right mouse button.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
Trade this news from Conotoxia Ltd. platforms
Go to your account
