USD/JPY 155.00 Bounce into the BoJ

USD/JPY Talking Points:

• Short-term price action retains a bullish look with higher-highs and higher-lows.
• Last week’s support built as a higher-low printed on the daily chart after Scott Bessent’s widely advertised threat regarding USD/JPY, saying “you can bet against me if you want.”
• In those remarks he also said he had asymmetric information, and he knew what the Bank of Japan was going to do. Tonight we will hear what else they might have in store outside of the 25 bp hike that’s already been priced-in.

USD/JPY remains the center of the FX market and after yesterday’s hawkish hike from the FOMC, the pair extended it’s recent rally to run above the 155.00 level.

But that’s not where the real story is, at this point, as it was resistance at 164 and then two weeks ago at 160 that really pushed price action in the pair. Behind the push was a dual intervention from the US and Japan which, historically, have had a high success rate. But fundamentals continue to favor the USD with higher levels of inflation and thus, more need for rate hikes than what’s currently showing in Japan.

However – that Yen weakness could present problems for Japanese economics as a weak currency combined with high oil prices and already surging bond yields paint for a troubling picture. So it makes sense as to why Japanese policymakers might want to be somewhat proactive here, especially considering that their debt-to-GDP of more than 200% makes those higher government bond yields an even greater vulnerability.

Japan is no stranger to experimental monetary policy, given their tours with negative rates and yield curve control. So while there’s the built-in expectation for a rate hike tonight, given the comments from Scott Bessent two weeks ago, one has to wonder if the Bank of Japan has any surprises in store.

At this point, from short-term charts, price action remains bullish as given the sequencing of higher-highs and lows. There is a significant zone of resistance overhead, however, from prior support-turned resistance at 156.68-157.22.

USD/JPY Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

USD/JPY The Bigger Picture Shift

From the weekly chart, it’s clear that a big picture shift has taken place and this has been the case ever since just after the July FOMC and BoJ meetings. This, of course, was pushed along by both central banks so the question now is whether sellers get another push forward from the BoJ rate decision ahead.

With the Fed retaining a hawkish lean the BoJ would likely need to highlight another rate hike to keep that bearish dynamic going.

USD/JPY Weekly Chart

Chart prepared by James Stanley; data derived from Tradingview

USD/JPY Shorter-Term Control 155.00

From the shorter-term chart, it was the 155.00 level that was resistance before becoming support around the FOMC meeting yesterday, and that’s the spot that would illustrate bearish control if prices are able to fall below.

USD/JPY Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Market Analyst, Global Macro