The USDJPY currency pair hit another yearly high today, almost reaching 150.8. However, a sharp downward momentum followed, with the price momentarily falling below the 150 level. Later the quotes stabilized in the middle of the daily range, leaving the question about currency intervention open. One way or another, the Bank of Japan has more and more reasons to act in the current situation.
Niels Christensen, chief analyst at Nordea, considers today's fluctuations in the yen exchange rate as usual volatility, not uncommon at local highs or lows. In his opinion, in case of currency interventions the dynamics of the Japanese currency would be much sharper, like it was last fall. Traders have to wait for October 31, when Japan's Ministry of Finance will publish a monthly report and the question of intervention will be answered.
Japanese officials have so far opted only for tightening policy. Finance Minister Shunichi Suzuki warned market participants betting on the yen's fall. According to him, the authorities are closely monitoring the situation and are ready to take appropriate measures if necessary. The need for the regulator's intervention can be clearly seen by looking at the debt market. Japan's 10-year bond yields today hit their highest level since July 2013 at 0.89%.
The falling yen, caused by the large difference between interest rates in the U.S. and Japan, will continue to put pressure on the Bank of Japan, forcing it to adjust the policy of limiting bond yields. According to Reuters, an increase in the existing 1% cap is being discussed as a possible move ahead of the monetary policy meeting on October 31. In any case, the currency market is demanding the Japanese authorities to take action, otherwise USDJPY risks to update last year's high, just below the 152 level.
The Bank of Japan may intervene at any moment, so it is too risky to count on a steady growth of USDJPY above the 150 level. Now the situation is rather in favor of buying the yen with the expectation of quotes' return to the 150 level.
The following trading strategy may be offered:
Sell USDJPY above 150.5. Take profit – 150. Stop loss – 152.
Traders may also use the Trailing stop instead of the fixed Stop loss at their discretion.
This content is for informational purposes only and is not intended to be investing advice.
