The Japanese yen has been gaining strength against the US dollar this week, as Japan’s finance minister Shunichi Suzuki hinted at possible intervention to curb the currency’s depreciation. The USD/JPY pair is trading near the 150 level, which is seen as a critical threshold for Japan’s export-oriented economy. The upcoming US inflation data could also influence the pair’s direction in the short term.
Japan’s Top Currency Diplomat Issues Warning
Japan’s top currency diplomat, Masato Kanda, said on Wednesday that the authorities would not rule out any options if speculative movements in the currency market continued. He added that Japan was closely watching the market developments and would take appropriate action if needed.
Kanda’s remarks came after Suzuki said on Tuesday that Japan would intervene in the currency market if the yen weakened further to around 150 per dollar. He said that such a level would be “excessive” and “abnormal” and would hurt Japan’s economy.
Japan has not intervened in the currency market since 2011, when it sold yen to stem its appreciation after a devastating earthquake and tsunami. However, the country has been facing pressure from its trading partners, especially the US, to refrain from manipulating its currency.
The US Treasury Department has placed Japan on its “monitoring list” of countries that may be engaging in unfair currency practices. The US has also urged Japan to adopt more fiscal and structural reforms to boost its domestic demand and reduce its reliance on exports.
US Inflation Data Could Trigger Volatility
The USD/JPY pair could also be affected by the US inflation data, which is due on Thursday. The US consumer price index (CPI) is expected to show a 0.4% increase in August, down from 0.5% in July. The annual inflation rate is forecast to ease slightly to 5.3% from 5.4%.
The US inflation data is closely watched by the market as it could influence the Federal Reserve’s monetary policy decisions. The Fed has maintained that the current inflation surge is transitory and largely driven by supply-side factors. The Fed has also signaled that it could start tapering its bond-buying program later this year, but has not given a clear timeline.
If the US inflation data comes in higher than expected, it could boost the dollar and put more pressure on the yen. However, if the data shows a significant slowdown in inflation, it could weigh on the dollar and support the yen.
Technical Outlook: USD/JPY Faces Resistance at 150
The USD/JPY pair has been in an uptrend since June, as the dollar benefited from the Fed’s hawkish stance and the yen suffered from the Bank of Japan’s (BoJ) ultra-loose monetary policy. The pair reached a new high since November 2022 on Tuesday, touching 149.70.
However, the pair has faced some resistance near the 150 level, which is also a psychological barrier. The pair has also shown some signs of bearish divergence on the daily chart, as the price made higher highs while the relative strength index (RSI) made lower highs. This indicates a loss of momentum and a possible reversal.
The pair could correct lower if it fails to break above 150. The immediate support level is at 147.37, which is the 23.6% Fibonacci retracement of the June-September rally. A break below this level could open the door for further losses towards 145, which is the 38.2% Fibonacci retracement and a former resistance turned support level.
On the other hand, if the pair manages to overcome 150, it could extend its gains towards 151.90-152, which is a key resistance zone formed by the highs of November and December 2022. A break above this zone could pave the way for a test of 157.80, which is the high of July 2022.