USD/JPY continues to gain ground
USD/JPY is almost unchanged today but hit a milestone in the Asian session as it briefly darted above the 150 line, which has psychological significance. This marked the yen’s lowest level since August 1990 as the currency continues to slide. The yen hasn’t recorded a winning session since October 4th and has plunged about 600 points during this period. Later today, Japan releases Core CPI for September, which is expected to rise to 3.0%, up from 2.8% in August.
The Bank of Japan holds its policy meeting next week, but it seems unlikely that it will change its ultra-loose policy. The yen is sinking and inflation is above the Bank’s 2% target, but the central bank is fixated on continuing to provide massive stimulus in order to support the weak economy. Earlier today, Japan’s 10-year government bonds breached the 0.25% cap which the BoJ has fiercely defended, rising as high as 0.264%. The BoJ has responded with an emergency bond-buying package in order to bring yields back below 0.25%.
With the BoJ defending its policy and ignoring the yen’s descent, the ball is in the court of the Ministry of Finance (MoF). The MoF dramatically intervened in late September to prop up the yen after it fell below 145, but the move did little more than slow the yen’s descent for a few days. Another intervention is possible, but it would have to be on a larger scale to have any substantial effect on the exchange rate. Finance Minister Suzuki has warned that the government would “properly respond” in the currency markets, but increasingly, the verbal bullets out of Tokyo are being viewed as blanks. With the Federal Reserve showing no signs of easing up on oversize rate hikes, the yen remains at the mercy of the US/Japan rate differential, which continues to widen. The yen’s prolonged downturn looks set to continue, with the currency likely to hit new lows.
- USD/JPY is testing support at 149.81. Below, there is support at 149.09
- There is resistance at 150.04 and 151.32