USD/JPY Faces Resistance Amid Verbal Intervention and Option Expiry Cap
USD/JPY retraced after peaking at 158.09 in New York trading on Thursday, with the pair now trading in the range of 157.96 to 157.51 during Asian hours. The fresh verbal intervention by Japan’s Finance Minister Kato contributed to the pullback, signaling a continued cautious stance from Japanese authorities to curb excessive yen depreciation. Despite this, the pair remains buoyant near July levels, as elevated US Treasury yields sustain the interest rate differential advantage over JGB yields, which remain steady.
Large option expiries at the 158.00 strike, worth $721 million, are expected to act as a temporary cap for further upward movement. However, the broader bias for USD/JPY remains upward, supported by firm US yields and the relatively muted activity in Japan, with Tokyo markets effectively closed until January 6. Fundamental data released today bolster the argument for a potential BOJ rate hike, though internal policy board divisions suggest January may not see immediate action. For now, USD/JPY could oscillate within a tight range, with upward momentum likely to persist in the medium term unless significant BOJ intervention or US rate policy shifts occur.
JPY crosses have mirrored USD/JPY’s pullback after prior rallies. EUR/JPY eased from a 164.75 high to trade between 164.64 and 164.11, while GBP/JPY fell from 197.90 to 197.15, remaining below its December 19 peak of 198.94. AUD/JPY skidded toward the lower end of the Ichimoku cloud base, retreating from 100.68 to 97.99, underscoring some bearish sentiment in yen crosses.