Japanese Yen Plunges, Retail Sales Follow
The yen changed direction today and is in negative territory. In the North American session, USD/JPY is trading at 144.59, up 0.33%. Japan releases a data dump later today, highlighted by August retail sales. The overall reading is expected to rise to 2.8%, following a 2.4% gain in July.
Intervention keeps yen below 145
Exactly a week ago, the yen went on a spectacular roller coaster ride, with USD/JPY trading within a range of 450 points. The yen has done poorly this year, losing around 20% of its value against the dollar. As the yen continued to fall, the Bank of Japan and the Ministry of Finance (MoF) would warn that they were worried, but the verbal rhetoric was not backed by action until the dramatic intervention of the MoF the last week. The Ministry of Finance intervened after USD/JPY broke through the 145 mark, and the Yen climbed as high as 2.5% after the intervention. Immediately, people wondered if unilateral action could stop the decline of the yen. Is 145 really a line in the sand, or will Tokyo let the yen continue to fall?
The intervention gave the yen a brief boost in the arm, but it was unable to consolidate those gains, for two reasons. First, the Federal Reserve is expected to remain hawkish at least through 2023, which has pushed US Treasury yields higher and widened the rate differential between the US and Japan. Second, the yen is caught in a tussle between the MoF, which wants to see a stronger yen, and the BoJ, which is focused on maintaining ultra-loose policy, which has kept JGB yields at low levels. low levels, even though it hurt the yen. Governor Kuroda has said more than once that a weak yen is not necessarily bad and has made it clear that he will not change policy until it is clear that inflation is not transitory. (by removing a page from Jerome Powell’s playbook).
These mixed signals have invited speculation on short positions in the yen and I would not be surprised to see the dollar/yen make another attempt to break through the 145 line shortly.
- 144.81 is under resistance pressure. 146.06 is next
- There is support at 143.21 and 141.88
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