The USD/JPY currency pair is seen to be relatively flat and around 161.60 during the early Asian market session on Wednesday morning.
Although the US Dollar (USD) gained strength from the aggressive (hawkish) signal from the US central bank (The Fed), the rise in USD/JPY seems to be 'stuck' as traders are now wary of the risk of currency intervention from the Japanese authorities.
Here are the main factors that are currently guiding the direction of the Yen (JPY) movement:
1. US Dollar Terrorizes Due to Kevin Warsh's 'Hawkish' Signal
In the recent June policy meeting, the Fed decided to keep interest rates at 3.50% to 3.75%. However, what made the US Dollar soar was the statement of the new Fed Chairman, Kevin Warsh, who emphasized that "price stability" (pushing inflation down) is his priority.
The market read this signal as very hawkish. According to the latest data from the CME FedWatch Tool:
The probability of the Fed raising interest rates by at least 25 basis points in July jumped to 37.4% (up from just 8.5% last week).
Betting on a hike in September jumped drastically to 70.2% (up from just 29.1% previously).
2. Signals of ‘Intervention’ Strengthen After Japan-US Meeting
As the Yen weakens, ministers in Japan get to work. Concerns about intervention (the central bank buying Yen to boost the currency) have been heightened after Japanese Finance Minister Satsuki Katayama held an official phone call with US Treasury Secretary Scott Bessent.
Added to this was a statement by Japan’s Chief Cabinet Secretary Minoru Kihara, who stressed that the government will not hesitate to take appropriate action if foreign currency movements become too extreme.
Market analyst from Sumitomo Mitsui Trust Bank, Takeru Yamamoto, commented:
“The Japanese authorities may want to send a message through these US-Japan talks that they are acting in concert with the US, and the ‘barriers’ to them intervening are actually not high.”
3. The Bank Of Japan (BoJ) Is Ready to Raise Rates
Not just waiting for physical intervention, the summary of the minutes of the Bank Of Japan (BoJ) meeting (Summary of Opinions) for June showed that the majority of the board members fully support raising Japanese interest rates.
This step must be taken as the risk of inflation is widening and the country’s core Consumer Price Index (CPI) is getting closer to the 2% target.
Conclusion for Traders: The war of nerves between The Fed, which wants to raise rates, and Japan, which is ready to block the fall of the Yen, has put USD/JPY in a sensitive zone. If you have a Buy (Long) USD/JPY position, please be careful because at any time Japan could ‘enter the needle’ to intervene, which could cause the price to plunge hundreds of pips in a matter of seconds!
Are you brave enough to buy USD/JPY near this high?
