The pressure is most definitely on for the Japanese yen as the Easter break approaches. The barrage of verbal interventions by Tokyo officials have helped to stem the bleeding in trading this week. But is merely just a band aid at this point in time?
The BOJ took a big step in putting an end to negative rates and scrapping its yield curve control policy this month. That being said, one can argue that they should have already started that process some time last year already. I mean, even they themselves are finding that the inflation trend in Japan is perhaps turning now.
Taking that into consideration, it will make it tougher to justify any further normalisation steps. They are very much in a race against the clock, despite all the recent positive wage developments.
From a technical standpoint, traders were also cautious and took profit when USD/JPY tested the 2022 and 2023 highs as seen above. The 151.90-94 region remains a key technical ceiling for price now as we settle down ahead of the weekend break.
So, what's next for USD/JPY?
If you look at the psychological perspective, traders are definitely being more wary and cautious now after the many warnings by Tokyo. But if the BOJ faces an uphill task to normalise policy further while the Fed may still have a 50-50 chance of not acting in June, there is an argument for USD/JPY to move up further as the pressure keeps up.
As we have seen in trading this week, this is a market that is very much driven by big data. I mean, the lack of releases this week shows how languid price action can be. This makes the US jobs report on Friday next week an even more critical factor for USD/JPY right now.
The tricky part is identifying when Tokyo might step in to intervene, if need be. Times of lesser liquidity are mostly preferred and the Easter break does present such an opportunity. However, traders are not really giving Japanese officials much of a sniff at the moment. USD/JPY has backed away slightly from the above high points, but is still looking poised.
That could see traders look to slowly push the same threshold again when we get to trading next week, all else being equal. But in doing so, the risk now is that we're getting closer and closer to the point where Tokyo might say enough is enough.
As much as Japanese officials want to fight the uptrend, they also have to be realistic. Unless USD/JPY oversteps by surging to 153 to 154 before the US jobs report, they might want to wait until Friday before acting. And if there is reason to, I reckon they might actually do so in the late stages of the day.
For now, buyers can take heart in the fact that the pair is set to close flat this week. There is some consolidation now around 151.15 to 151.50 over the last two days. Meanwhile, key near-term levels are also starting to build closer with the 200-hour moving average at 151.28 currently. Keep above that and buyers will stay poised going into next week.
