USD/JPY nudges back up towards 158.00 mark as dollar holds firmer on the week
The USD/JPY pair is testing the critical 158.00 level as the dollar remains resilient amid ongoing bearish sentiment for the yen. Per the full note from Justin Low at investinglive.com, the Ministry of Finance's (MOF) recent intervention efforts have yet to stabilize the currency, raising questions about their willingness to engage further. The current market dynamics suggest that traders are increasingly willing to challenge the MOF's thresholds, especially with external pressures like rising oil prices exacerbating the yen's weakness. This situation is compounded by the lack of significant intervention during low liquidity periods, which may have diminished the effectiveness of previous actions.
What the desk is arguing
The desk believes that the USD/JPY is poised to breach the 158.00 mark as market participants continue to test the MOF's resolve. The yen's persistent weakness is underscored by a lack of bullish catalysts, particularly as geopolitical tensions and rising oil prices weigh heavily on its performance. Per the full note source, the MOF's previous interventions have not yielded lasting effects, leading to speculation about their future actions.
Recent price movements indicate that traders are pushing the boundaries of the MOF's intervention capabilities. The dollar's firm footing, coupled with the yen's bearish fundamentals, suggests that the pair may continue to trend higher unless a significant shift occurs in market sentiment or MOF strategy.
Where it sits in our coverage
Our consensus target for USD/JPY stands at 1.075, with a range from 1.04 to 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26) - citi: 1.12 (Mar26)
This view aligns with jpmorgan's target, which is at the upper end of the consensus range, indicating a bullish outlook on the dollar against the yen. Conversely, bofa's more bearish stance reflects a divergence in expectations regarding the yen's recovery potential.
How other firms see it
Firms like jpmorgan and citi share a similar bullish outlook on USD/JPY, anticipating further weakness in the yen due to ongoing economic challenges. In contrast, bofa holds a contrary position, expecting the yen to recover against the dollar in the near term.
Traders should also monitor related currency pairs such as EUR/JPY and AUD/JPY, as their movements may provide additional insights into broader market sentiment and the effectiveness of MOF interventions.
What the calendar says
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There's not much else to say that we haven't said already when it comes to the yen currency. The struggle continues despite the MOF's latest intervention efforts and we're starting to see traders push the limits of Tokyo officials once again. There was a bit of a minor shove lower yesterday in USD/JPY but not before quickly bouncing again.
Now, we're starting to see the pair close back in on the 158.00 mark as we test the levels of where the MOF intervened last week: The situation today is no different from what it was the day before. For some background: Japanese yen starting to slip away again, will Tokyo officials step in? As mentioned then, the yen continues to be pinned down by overwhelmingly bearish fundamental factors.
And with oil prices sitting higher as the US-Iran war drags on, there's not much reprieve in sight. So, that just leaves the question of how much appetite does the MOF have in wanting to fight against the market after having shown their hand at the end of April? Personally, I feel that they could've done a better job in waiting out the Japanese market holiday period before intervening again.
But alas, they ultimately decided to intervene during low liquidity conditions. That for me was a mistake on their part, even if it managed to save them some ammunition. However, the price to pay for that was poor signaling and diminishing effectiveness on further intervention moves.
That unless they step up the scale in which they are going to enter the market. As the dollar keeps firmer so far today, this is one currency pair that will act on its own regardless of dollar sentiment. The yen is in its own struggling space and the only risk factor in play is when the MOF will decide to intervene next.
This article was written by Justin Low at investinglive.com.
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