Japanese Yen Outlook: MOF Riding BOJ, Fed Momentum?

USD/JPY has fallen sharply as BOJ tightening expectations, softer Fed pricing and yen-short covering converge. Intervention was ruled out on September 2, but whether the MOF subsequently leaned into the favourable momentum remains unconfirmed.

USD/JPY Slides as BOJ, Fed Momentum Builds and MOF Risk Lingers

We know the MOF deployed a record ¥15.4 trillion of intervention to effectively nail the July top on USD/JPY. And while bearish momentum has accelerated sharply over the past four days, the latest move appears to have initially been driven by a repricing of BOJ policy expectations, with any subsequent MOF involvement still unconfirmed. Regardless, with USD/JPY now around 6% below its July high and momentum pointing sharply lower, price action is finally beginning to resemble the dominant bearish structure I alluded to in prior articles.

Reuters reported that the initial September 2 yen surge triggered intervention speculation, but subsequent BOJ account data indicated there was no government intervention behind the move. However, whether the MOF stepped in after September 2 remains unconfirmed. The next monthly MOF release, covering August 27 to September 28, is due on September 30 and will show whether intervention occurred during that period, although the exact dates will not be known until the quarterly breakdown in November.

When we take a step back to admire the view, history shows that MOF intervention can mark important turning points for USD/JPY, with several episodes followed by double-digit declines over the subsequent weeks or months. And with USD/JPY currently ‘only’ around 6% below its July high and momentum firmly on the side of bears, there could be further losses to come.

Source: ICE, TradingView

What Is Driving USD/JPY Lower?

• Takata and Ueda turned more hawkish: Both signalled that the BOJ could move faster, bringing a September hike firmly into play.
• September hike odds surged: Markets have moved to almost fully price a 25bp hike to 1.25%.
• Political resistance softened: Takuji Aida brought forward his own hike call to September.
• Fed expectations briefly moved in the yen’s favour: Waller’s dovish comments reduced Fed hike odds and pressured the US dollar.
• Higher JGB yields encouraged repatriation: Rising domestic yields increased the appeal of Japanese assets and added to yen demand.
• Yen shorts were squeezed: Carry-trade and speculative short unwinds accelerated the move once USD/JPY broke lower.
• MOF risk remains in the background: Intervention after September 2 remains unconfirmed, but officials may have had an incentive to lean into favourable momentum.

Source: LSEG

USD/JPY Technical Analysis: US Dollar vs Japanese Yen

The daily chart shows a clear break of the May low, though the 100-week EMA is nearby to provide potential support. But with momentum now realigned with the initial selloff from the July high, my bias is for an eventual break beneath the 100-week EMA and for bears to target the January low. A break of 152 brings 150 into focus. For comparison, a 13.8% selloff similar to that which followed the July 2024 intervention would imply considerably deeper losses, while a 15% selloff would take USD/JPY down to 137.76.

We would likely need to see bets of Fed hikes evaporate completely before there is much chance of such steep selling in USD/JPY. But it is a scenario to consider as the weeks or months develop. I have outlined my bearish bias on the US dollar for several months, so perhaps the stars can align after all.

The 4-hour chart shows prices holding above the weekly S1 pivot and 154 handle for now. But with momentum, fundamentals, BOJ policy and MOF suspicions on their side, bears may be seeking to fade into rallies and extend the selloff towards 152. Note that the January low of 152.09 sits between the weekly S2 and monthly S3 pivots.

Source: ICE, TradingView