Time for the Bank of Japan’s currency interventions has not yet come

20 June 2023 168
Time for the Bank of Japan’s currency interventions has not yet come

Earlier in the week, the USDJPY currency pair rose above 142 for the first time since last November. Given the strong increase in the dollar against the yen at the end of last week, some market participants decided to at least partially take profits. As a result, the USDJPY is now pulling back to 141.5. At the same time, the medium-term uptrend retains its strength, and soon the local highs will be renewed.

On Friday, the Bank of Japan (BOJ) kept its negative key rate at -0.1% unchanged again. BOJ Governor Kazuo Ueda confirmed his forecast of a slowdown in inflation by the end of the year and promised to keep monetary policy ultra-easy as long as needed to maintain stable economic growth.

Expectations of changes in BOJ policy associated with the April replacement of the Governor have not yet come true. Just like his predecessor Haruhiko Kuroda, Kazuo Ueda is extremely cautious about any statements about raising rates or government bond yields. Some market participants expect a move to tighten monetary policy at the July meeting, along with a review of inflation forecasts. But until then, the yen will continue to be under pressure.

It should be noted that USDJPY is getting closer to the important level of 145. Starting from that level last autumn the BOJ began to intervene in the exchange rate in order to support the yen. Such actions might be repeated in the current situation, so it is better to open long positions on the dollar against the yen during correctional pullbacks, but not during the strong growth momentum.

The flat, in which the USDJPY was in the first half of June, helped to relieve the overbought RSI indicator, and from the technical point of view, there is little that prevents the growth to continue now. A pullback to 140.5 might be a good buying opportunity. In case of the resumption of the price rise the first target will be the high of today's trading session at 142.2.

The following trading strategy may be offered:

Buy USDJPY at declining to the range of 140.5-141. Take profit – 142.2. Stop loss – 139.5.

This content is for informational purposes only and is not intended to be investing advice.

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