USD/JPY Daily Chart Analysis – 2024-07-03

USD/JPY reached a new 38-year high on Tuesday, fueled by rising U.S. bond yields, prompting official remarks. Notably, Japanese officials showed less readiness to intervene, indicating that, given the wide yield gap between Japan and the U.S., long-term intervention might be less effective. Although it stalled before hitting another key level, consolidation has slightly reduced bullish momentum. However, a rise above 162.00 is possible, with analysts targeting 165.00 and 170.00. Market participants should be cautious, considering the rapid decline seen during the last intervention, which dropped USD/JPY from 160.24 to 151.86. Authorities are concerned about the impact of rapid, one-sided forex moves on the Japanese economy, and despite not explicitly mentioning intervention in the latest warnings, market players should not rule out the possibility of official action.

USD/JPY remained steady as the initial dip, spurred by Powell’s remarks, was quickly reversed. Powell was perceived as slightly dovish, noting the ongoing disinflation trend and indicating that unexpected employment weakness could trigger policy responses. A series of upcoming U.S. data, including ISM and Initial Jobless Claims on July 3, will guide near-term actions. The recent rise in U.S. Treasury yields and stronger equities keep USD/JPY risks elevated. Key support levels are at 161.26 (55-hour moving average), 161 (100-hour moving average), and 160.25 (pre-intervention peak).

Fed Chair Powell commented on significant progress in inflation and stressed the need for confidence before reducing policy rates, projecting inflation to be in the mid to low twos a year from now. He highlighted the importance of addressing the large budget deficit soon. Fed’s Goolsbee noted that as inflation decreases, policy tightens, emphasizing the need to maintain restrictive measures as long as necessary. The U.S. May JOLTS Job Openings came in at 8.140 million, exceeding forecasts.

In Europe, ECB President Lagarde noted that inflation is moving in the right direction and it is very unlikely to return to ultra-low rates. ECB’s Makhlouf expressed comfort with the expectation of another interest rate cut, though he suggested that expecting two cuts might be excessive but not impossible. ECB’s Wunsch stated that the next rate cut would be an easy decision before choices become more challenging. Eurozone inflation showed a slight easing, but service costs remain high.

In Japan, the finance minister affirmed vigilance over forex markets but avoided issuing a warning about intervention. Mizuho Bank’s CEO projected that Japan’s interest rates could rise to 0.5% by March 2025. Additionally, rating agency S&P issued debt warnings to the U.S., France, and other top economies, highlighting ongoing fiscal concerns.

Overall, USD/JPY dynamics remain influenced by U.S. yields, policy expectations, and geopolitical uncertainties, requiring careful monitoring by market participants.