The USD/JPY pair has updated another price record this week, rising to a 24-year high of 145.00. And although traders were unable to gain a foothold within the 145th figure, bullish sentiment still prevails for the pair. Buyers feel more than confident against the background of the divergence of the monetary policy of the Fed and the Bank of Japan and the strengthening of anti-risk sentiment in the markets. Treasury bond sales this month widened the yield gap between the US and Japan, putting additional pressure on the yen.
The scale of the upward offensive is really impressive. In just two weeks, the pair jumped by almost 900 points. Back in late August, the price was at around 136.50.
Today's price pullback occurred due to the publication of data on the growth of the Japanese economy. The data came out in the "green zone." In the second quarter, Japan's GDP increased by 3.5%, despite the fact that most experts predicted an increase of 2.9%. Also, the bears temporarily seized the initiative amid news that Japan's Ministry of Finance will hold an emergency meeting, together with the Bank of Japan and the Financial Services Agency.
However, judging by the persistence of USD/JPY buyers, we can assume that the current correction will not last long. Traders, at the moment, do not have any good reason to reverse the trend. Therefore, in the medium term, the pair will again besiege the borders of the 145th figure.
And yet we must not forget that the Japanese currency still has a kind of "trump card up its sleeve." For quite a long time, the Japanese authorities (represented by the so-called "tops") have turned a blind eye to the rapid devaluation of the national currency. But when the USD/JPY pair broke the 140th mark, many officials and politicians were still concerned about the sharp depreciation of the yen. BoJ's Governor Haruhiko Kuroda said that such a rapid rise in USD/JPY "negatively affects the country's economy." A similar rhetoric was voiced by the Minister of Finance of Japan, who stressed his concern about "sudden and unilateral movements in the foreign exchange market." Deputy Chief Cabinet Secretary Kihara Seiji also expressed concern about the current situation. According to him, the authorities are ready to take the necessary steps "if the latest movements in exchange rates continue."
At the same time, the yen continued to fall, despite verbal interventions from representatives of the government and the Japanese regulator.
There is no consensus on the market about when the Bank of Japan can intervene in the situation "not by word, but by deed." Some experts expect this may happen when the USD/JPY exchange rate overcomes 145.00. Others said the "red line" is located in the area of the 150th figure (when approaching this target). It is worth noting that the last time Japan carried out currency interventions to strengthen the national currency was 24 years ago, in June 1998, when the pair reached 147.60.
Given this circumstance, it is impossible to speak with confidence about the prospects for the upward trend, although the existing fundamental background contributes to its development. The Bank of Japan is still pursuing a soft monetary policy, so the yen is a priori losing to other currencies of the "major group." And even more so the dollar, which enjoys the support of the Fed. Traders are almost certain that the US regulator will raise interest rates at an aggressive pace this year. For example, after the publication of the services PMI for August (the indicator showed the best result since April this year, reaching 56.9 points), the CME Group tool signaled a 70 percent probability of a 75 basis point increase in interest September meeting.
Against the background of the "dovish" rhetoric of the Bank of Japan's representatives, the Fed looks like a kind of antipode. Therefore, it is safe to say that under the circumstances, the yen will be saved only by currency intervention—only in this case can we count on a large-scale downward pullback of USD/JPY. At the same time, verbal signals are actually ignored by the market.
Summarizing all of the above, we can draw some conclusions. First, the upward trend is still in force. Secondly, the threat of currency intervention remains and will only increase as the USD/JPY pair continues to grow. All this suggests that it is advisable to open longs on the pair on downward pullbacks. For example, from current positions, we can consider buying with the first and so far the main upward target of 145.00. It is too early to talk about further upward prospects: traders do not risk storming the 145th figure, so the 145.00 target acts as a key resistance level and a "price ceiling."
