Market update: Japanese Yen falls despite official comments, USD/JPY hits new highs

Official comments go unheard prompting Foreign Exchange intervention

Talk overnight by Japanese officials was unable to prop up the Japanese Yen with USD/JPY (大口） floating back to highs last seen in late April.

Bank of Japan (BoJ) Governor Kazuo Ueda stressed that he is looking at Foreign Exchange (FX) levels and their impact on import prices. In addition, Japan's Prime Minister Fumio Kishida said that it was important to guide policy 'flexibly' to end deflation and promote growth. While both officials made market-related comments, the Japanese yen continued to slip lower, testing levels that have seen FX intervention.

Bond-buying program to be cut

The BoJ said last week that they would cut their bond-buying program but would not announce by how much until the next BoJ meeting on 31 July. Unless the US dollar turns sharply lower, the BoJ will likely have to intervene to prop up the Yen as verbal intervention is no longer working.

Japanese Government bond technical analysis

The yield on the 10-year Japanese Government Bond (JGB) has moved higher since the start of 2024 until a sharp reversal at the end of May. In the short-term the yield on the benchmark JGB 10-year yield will struggle to move appreciably higher, due to markets questioning when officials will start to tighten monetary policy.

JGB 10-year yield chart

USD/JPY technical analysis

The daily USD/JPY (大口） chart looks positive, despite the Commodity Channel Index (CCI) being in overbought territory. The pair are now above all three simple moving averages and are set to print a fresh multi-week high. Above the 158 area, there is little in the way of resistance before the recent multi-decade high at 160.215.

As traders remain net-short, will USD/JPY prices rise further?

Retail trader data show 25.87% of traders are net-long with the ratio of traders short to long at 2.87 to 1. The number of traders net-long is 11.66% higher than yesterday and 4.94% higher than last week. While the number of traders net-short is 5.87% higher than yesterday and 2.52% higher than last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD/JPY (大口） prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current USD/JPY (大口） price trend may soon reverse lower despite the fact traders remain net-short.

USD/JPY daily price chart

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