Sun, June 16, 2024

USD/JPY Poised to Rebound at 154.90 Support

Wibest – Yen: Japanese yen bills and coins (USD/JPY)

Quick Look:

  • USD/JPY shows potential to rebound around the 50-day SMA at 154.90, supported by differing Fed and BoJ policies.
  • Significant levels include 154.90 (50-day SMA), 157.48 (weekly high), and 151.87 (May low). Fibonacci extensions are crucial markers.
  • Japanese currency interventions and positive US economic indicators like ISM Services PMI and NFP data impact the exchange rate.

The USD/JPY exchange rate is exhibiting the potential to rebound from its early-week decline, specifically around the 50-day Simple Moving Average (SMA) positioned at 154.90. The contrasting monetary policies of the Federal Reserve and the Bank of Japan (BoJ) underpin this prospective recovery, with the positive trend in the moving average further supporting this outlook.

USD/JPY Key Levels: 154.90 to 157.48

The key price levels for the USD/JPY include the 50-day SMA at 154.90 and the weekly high of 157.48. Throughout May, the exchange rate ranged between an upper bound of 157.48 and a lower bound of 154.54. Other significant levels include 155.00, corresponding to the 61.8% Fibonacci extension, and 153.50, aligning with the 50% Fibonacci extension. Additionally, the May low is 151.87, while the range of 156.50 to 157.10 represents the 78.6% Fibonacci extension, and the April high stands at 160.22.

¥9.8 Trillion Intervention by Japan in May

Recent key events influencing the USD/JPY include Japan’s Ministry of Finance conducting currency interventions between April 26 and May 29, amounting to ¥9,788.5 billion. The Federal Open Market Committee (FOMC) is anticipated to maintain a restrictive policy stance. The ISM Services PMI for May reported a figure of 53.8, exceeding the forecast of 50.8. Furthermore, the US Non-Farm Payrolls (NFP) report projected an addition of 185,000 jobs for May, compared to 175,000 in April.

USD/JPY Outlook: Key Levels and Trends

Analysing these factors, the USD/JPY is expected to remain within May’s trading range if it does not surpass the weekly high of 157.48. The upward slope of the 50-day SMA suggests a continued positive trend unless the pair closes below this average. Should the exchange rate break above the 156.50 to 157.10 range, it could signal a movement towards the April high of 160.22. Conversely, a failure to defend the monthly low of 154.54 might push the pair towards 153.50, with the next significant level around the May low of 151.87.

Japanese Securities Holdings Drop by $50.4 Billion

In terms of Japanese foreign securities holdings, May saw a reduction of $50.4 billion. Intervention spending during this period was substantial, amounting to ¥9.8 trillion, approximately $62.7 billion. Japan’s foreign deposits are $159 billion, while total official reserves amount to $1.23 trillion. This suggests that Japan likely financed its recent currency interventions by selling Treasuries and other foreign securities, indicating a significant capacity for future interventions.

Impact of $62.7 Billion Intervention Spending

The implications of these movements are notable. The decline in foreign security holdings aligns with historical methods of funding interventions. The sale of US bonds might suggest implicit approval from US authorities, although US Treasury Secretary Janet Yellen has advised that currency interventions should be used sparingly. Typically, such interventions have short-term effects but can temporarily deter speculative activities.

Interest Rate Gap: 0.1% in Japan, 5.5% in the US

Lastly, interest rate differentials play a crucial role in this analysis. Japan’s short-term interest rate is currently at 0.1%, whereas the Federal Reserve’s is at 5.5%. While the BoJ is expected to consider raising rates, the likelihood of the Federal Reserve implementing rate cuts appears minimal due to the robust state of the US economy. Thus, the USD/JPY exchange rate dynamics remain closely tied to these economic and policy factors, with future movements contingent on these evolving conditions.

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