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Japanese Yen recovers sharply from 40-year low as intervention bets trigger short-covering

  • USD/JPY meets with heavy supply as a suspected intervention triggers JPY short-covering.
  • A modest USD downtick exerts additional pressure on the pair and contributes to the fall.
  • The wide US-Japan rate differential could limit further losses ahead of the US NFP report.

The USD/JPY pair comes under intense selling pressure and plummets to the 161.00 neighborhood heading into the European session on Thursday, snapping a three-day winning streak to the highest since 1986 set the previous day. Spot prices, however, rebounded a few pips in the last hour and currently trade around the 161.70 region, still down over 0.50% for the day.

The decline in the USD/JPY pair came after Reuters reported that Japanese officials will stop signalling intervention risks and start focusing on targeting speculators. This, in turn, prompted traders to unwind their bearish bets on the Japanese Yen (JPY). The US Dollar (USD), on the other hand, drifts lower on the back of Wednesday's softer-than-expected US macro data and turns out to be another factor exerting heavy downward pressure on the currency pair.

However, elevated US Federal Reserve (Fed) rate hike expectations, along with geopolitical risks, should help limit deeper USD losses ahead of the closely-watched US monthly employment details. In fact, the CME Group's FedWatch Tool indicates that traders are still pricing in around a 64% chance that the US central bank will raise borrowing costs in September and assigning a nearly 85% probability of a move by the end of this year. This, in turn, favors the USD bulls.

Meanwhile, the Bank of Japan (BoJ) raised its benchmark policy rates to 1% – the highest since 1995 – in June. The Fed, on the other hand, maintained the interest rate target range of 3.5% to 3.75%, leaving a gap of around 250 basis points (bps). This, in turn, might keep the so-called JPY carry trade in play and hold back traders from positioning for any meaningful corrective fall. Hence, strong follow-through selling is needed to confirm that spot prices have topped out.

Japanese Yen Price Today

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the Australian Dollar.

USDEURGBPJPYCADAUDNZDCHF
USD-0.19%-0.31%-0.53%-0.07%0.01%-0.14%-0.22%
EUR0.19%-0.12%-0.37%0.11%0.19%0.06%-0.03%
GBP0.31%0.12%-0.22%0.22%0.32%0.18%0.08%
JPY0.53%0.37%0.22%0.45%0.55%0.37%0.31%
CAD0.07%-0.11%-0.22%-0.45%0.09%-0.04%-0.15%
AUD-0.01%-0.19%-0.32%-0.55%-0.09%-0.13%-0.23%
NZD0.14%-0.06%-0.18%-0.37%0.04%0.13%-0.10%
CHF0.22%0.03%-0.08%-0.31%0.15%0.23%0.10%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).

Author

Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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