USD/JPY Daily Chart Analysis – 2024-06-25

The USD/JPY currency pair is experiencing significant volatility and shows signs of potentially breaking the 160.00 level, especially after a late squeeze that saw the pair move back above the 10-hour moving average, reaching 159.60 during the New York session. The session was characterized by a high degree of fluctuation, with the pair hitting a peak of 159.94 in Asia, dipping to a low of 158.75 in Europe, and recovering to 159.87 in New York. The peak in Asia triggered verbal intervention from Japanese authorities, which kept the market cautious. Notably, currency diplomat Kanda warned of taking appropriate measures if forex movements become excessive.

Monday’s trading underscored the market’s anxiety regarding potential intervention. Despite the intervention risk, both fundamental and technical factors continue to support USD/JPY. One of the key drivers is the interest rate differential, with the yen being particularly vulnerable to higher U.S. yields. This vulnerability was exacerbated when the Bank of Japan decided to delay reducing its bond-buying program, further weakening the yen.

Japanese authorities are attempting to bolster the yen through verbal interventions. However, these efforts typically result in only temporary pullbacks, as the underlying technical and fundamental factors favor the dollar. The market remains willing to test the Bank of Japan’s resolve, especially after a significant intervention earlier in the year, which saw nearly 10 trillion yen injected to drop USD/JPY from 160.24 to 154.40. Since then, the market has recovered nearly all of that move, suggesting strong support for the dollar.

USD/JPY appears poised to break above the 160.00 level, although traders remain cautious about potential official interventions. As long as the interest rate differential between Japan and the U.S. remains wide, the yen will remain sensitive to increases in U.S. yields, allowing the market to continue challenging any attempts at a yen recovery. In the European session, USD/JPY dropped to 158.75 from 159.94 but has since recovered to 159.44. Key levels to watch this week include the 10-day moving average at 158.02 and the high of 160.24 from April 29.