Yen Rally Continues

The Japanese Yen is continuing to push firmly higher against the US Dollar today. Recent USD weakness along with hawkish BOJ expectations, unwinding carry trades and suspected intervention, is helping USDJPY correct heavily lower with the pair now down around 4% from the August highs and 6% from the YTD highs. Suspected intervention from the BOJ has helped JPY capitalise during the recent period of USD weakness we’ve seen.

Hawkish BOJ Expectations

A key driver behind the move has been the hawkish shift in traders’ BOJ expectations ahead of the upcoming September meeting. The Japanese Prime Minister’s economic adviser further stoked expectations of a hike this week saying that the BOJ is likely to raise rates again this month with a follow-up hike in January. This comes on the back of hawkish comments from BOJ policymakers recently, reinforcing the view that a fresh hike is coming this month. At the same time, there is more uncertainty around whether the Fed will hike, creating divergence in expectations which is currently supporting the Yen. Looking ahead this week, Friday’s US CPI data could drive the pair even lower if we see a downside surprise, diluting Fed tightening expectations for now and boosting JPY further ahead of the upcoming BOJ meeting.

Technical Views

USDJPY

The sell off in USDJPY has seen the pair breaking down below the 154.65 level. With momentum studies bearish, focus is now on a deeper push towards the 152.05 level next. The bearish outlook holds while price remains below the 157.85 level.