Last Thursday was an incredibly volatile trading session for the USD/JPY. This volatility was largely caused by the Bank of Japan's (BoJ) intervention in the currency markets to defend its depreciating currency, the Japanese Yen. Last week’s move was the first time since 1998 that the BoJ had intervened.
There are some parallels between 1998’s intervention and 2022’s. For one, the price level in 1998 was cracking 146.00 when the BoJ stepped in. Before last week’s intervention, the pair was trying to sustain a break above the 145.00 key resistance, almost reaching the 146.00 price level.
Where the most recent intervention might diverge is the sustainability of the pair’s downside potential.
While last week’s intervention did cause a huge fall in the USD/JPY from 145.90 to 140.35 in one session, it has since found its way back to ~144.00 over the ensuing days. This is because the BoJ’s temporary currency intervention is no match for its unwavering commitment to ultra-low interest rates. Bear in mind that the BoJ may jump back into the currency market at any time to help the yen, and as we have seen, 145.00 is a critical level for the BoJ.
Currently, the price for the USDJPY is back on track towards the upside. However, the price is currently contenting with 145.00, a monthly key psychological resistance and an RSI in the 60s.
USD/JPY 1D, with RSI
On the other hand, the daily timeframe has a minor candle closure above the 144.50 daily resistance. This closure might indicate a possible continuation of the upside. The current daily candle, however, should have a strong bullish candle close to support this idea. The current candle closing below 144.50 might indicate a consolidation between 144.50 and 142.00 and needs to make an empathic break before we see price make a sustained move in either direction.
Risk Warning: Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange, you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and, therefore, you should not invest money you cannot afford to lose. You should make yourself aware of all the risks associated with foreign exchange trading and seek advice from an independent financial adviser if you have any questions or concerns as to how a loss would affect your lifestyle.