Japanese Yen – Calm Before the Storm?

After some mid-week volatility, USD/JPY has settled down. In the European session, the yen is trading quietly at 143.59.

Markets eye BoJ meeting

For anyone following the Japanese yen, next week promises to be interesting, at the very least. The Federal Reserve will hold its policy meeting on September 21^st, with the Bank of Japan officials meeting the next day. The Japanese yen continues to lose ground against the dollar, and fell to 144.99 earlier this month, a new 24-year low. Japanese officials have responded with well-worn rhetoric about how Tokyo is concerned about the yen’s depreciation and warning that all options are on the table. We’ve heard this all before, but is this time different? Is Japan seriously contemplating a currency intervention to prop up the ailing yen? There has been some speculation that 145 could be a line in the sand for the MOF, but in fairness, there was similar talk when yen hit 130 and then 135, and the MOF and BoJ stayed on the sidelines.

The likelihood is that Tokyo will avoid such a dramatic move, which last occurred in 2011. The Ministry of Finance (MOF) and the Bank of Japan are not happy with the rapid descent of the yen, but an intervention would require the consent of the G-20, which is unlikely to give its consent. The BoJ made waves this week after a report that it had conducted a rate check, which was viewed as a possible prelude to an intervention. Finance Minister Suzuki has been coy about what moves he might make, and refused to comment on whether the BoJ had made a rate check.

The BoJ has rigidly maintained its ultra-loose monetary policy in order to stimulate Japan’s fragile economy. As part of this policy, the BoJ has kept a firm hand on its yield curve control, and the price for this stance has been a freefall in the yen, which is done an astounding 30% against the dollar this year. With the Fed looking to hike next week by 75 basis point, and an outside chance of a massive full-point increase, the yen’s downtrend is likely to continue, barring a spectacular response from Japanese officials.

USD/JPY Technical

• 1.4363 is the next line of resistance, followed by 144.81
• USD/JPY has support at 142.56, followed by 141.88