Bank of Japan To Try And Save Yen Again? – USDJPY Market Analysis Forecast

Key Points

• Japanese Yen continues slump.
• BoJ is “ready to step in.”
• Core PCE ticks lower. 
• How much further can USDJPY go?

Market Overview

The Japanese Yen is the worst-performing actively traded currency in the world. USDJPY has gained an astonishing 1600 pips (12%) this year already, and it’s been a gold mine for anyone who has piled into retracements.

The latest retracement came when The Bank of Japan intervened with a whopping $33 billion in Japanese Yen. This impact has been short-lived because 75% of the move lower has been reversed. Is the Japanese yen following the same path as the Turkish Lira?

BoJ Ready To “Step In”

Bank of Japan policymakers have strongly hinted that another rate hike will be on the way should the Yen fall significantly impact inflation. Data this week showed Tokyo inflation figures ticked higher again in May, which sparked unusually hawkish comments from the BoJ members.

Despite this, it remains in the balance if a rate hike will be brought forward from the projected hike in October. In my opinion, there would need to be more damning evidence of the weakening Yen impacting inflation for the usually dovish BoJ to shift. This opens the door to more Yen weakness.

Core PCE Ticks Lower

Friday’s Core PCE Price Index report was a welcome viewing for the Federal Reserve. The m/m figure came in at 0.2%, lower than the previous and forecasted figures, both 0.3%. Personal spending also fell to 0.2% from 0.3%, and the last figure was revised down to 0.7%. As a result, the dollar has lost ground, and stocks have moved higher. 

Two consecutive days of softer data have provided more evidence that the Federal Reserve’s long and aggressive hiking cycle is finally starting to bite the US economy and consumers. Therefore, this will likely continue the downward trajectory of inflation, which will please Jerome Powell. However, he will also be hoping the drag on the US economy isn’t too damaging that it triggers a recession. This is a delicate balancing act.

USDJPY To Continue Grind Higher?

As for USDJPY, the price has been grinding higher and has filled the Fair Value Gap created by the intervention, which was predicted in my previous USDJPY article. The weaker Core PCE, coupled with some hawkish comments from the Bank of Japan committee, has seen the rise halt this week.

The chart shows a liquidity sweep marked at around 156.60, which has traded as high as 157.350 since then. The bulls will target the previous swing high of 157.997 to complete the move from the liquidity sweep.

However, if the price returns to the wick created by the liquidity sweep, we could be set up for some more downside on USDJPY. The areas price may be drawn to are the two Fair Value Gaps at 155.000 and 154.500, respectively.