Adapted from an article by Matt Weller at Forex.com: “Yen strength leads FX ahead of BOJ, Fed – USD/JPY, AUD/JPY, AUD/USD”
The yen showed renewed strength in forex markets to start the week, driven by concerns over potential intervention from Japanese authorities and anticipation of policy decisions from the Bank of Japan (BOJ) and the U.S. Federal Reserve. These developments added fresh volatility to currency markets, particularly in yen pairs and across risk-sensitive currency pairs like the Australian dollar.
In this expanded analysis, we break down the current FX market landscape, the potential policy stances of the BOJ and the Federal Reserve, and the technical outlook for key currency pairs like USD/JPY, AUD/JPY, and AUD/USD.
Market Focus Shifts to Central Banks
This week marks a pivotal period for foreign exchange markets as traders gear up for monetary policy decisions from both the BOJ and the Federal Reserve. These announcements come at a critical point for the global economy, as markets weigh slowing inflation data, resilient labor markets, and diverging policy paths among major central banks.
– The Federal Reserve’s policy announcement is scheduled for Wednesday, with expectations leaning toward a hold in interest rates.
– The BOJ policy decision will follow on Friday, where traders will closely monitor any language indicating changes to current monetary policy settings or intervention in the forex markets.
The yen strengthened noticeably across major currency pairs during Monday’s trading session, as traders speculated whether the Japanese Ministry of Finance and BOJ might increase verbal or actual intervention efforts to curtail yen depreciation. The currency has been under pressure due to wide interest rate differentials between Japan and other major economies, especially the U.S.
Yen Strength: Intervention and Sentiment
A key factor behind the yen’s recent firmness is speculation of government-backed intervention.
– Japanese Finance Minister Shunichi Suzuki previously confirmed that his ministry is prepared to act if the yen weakens too quickly or excessively.
– Traders grew wary that a move near the 155-156 zone in USD/JPY could trigger intervention, a zone that previously scared off sustained bullish momentum in the pair.
– Technical and psychological significance also surrounds this level, contributing to cautious positioning in yen pairs heading into this week’s events.
A stronger yen has implications across multiple pairs, especially those involving higher-yielding currencies that have driven carry trades, such as the Australian dollar and the U.S. dollar.
USD/JPY Technical Setup
USD/JPY has been one of the most closely watched currency pairs in recent weeks due to its proximity to multi-decade highs and intervention fears.
– The pair reached as high as 156.78 before retracing, a level not seen since 1990.
– Resistance is seen in the 156.50 to 157.00 area, an area that may continue triggering profit-taking and intervention speculation.
– Short-term support lies near 154.00, with a more substantial zone around 153.00-153.50 acting as a key defense for bulls.
– A break below that level could signal a larger correction toward 151.00 or even 150.00.
– Momentum indicators, such as RSI, have been diverging—hinting at weakening upside momentum even as price action approached highs.
Traders will be heavily focused on the language used in the Fed statement and BOJ press conference. Any dovish shift from the Fed alongside a firmer BOJ stance could encourage deeper pullbacks in USD/JPY, undermining carry trade positioning.
AUD/JPY: Risk Sentiment Souring Amid Volatility
As another popular yen cross, AUD/JPY tends to reflect both carry trade dynamics and broader risk sentiment.
– The pair traded down from multi-year highs near 104.00 to test the mid-102s by early week trade.
– AUD/JPY benefits in environments where risk appetite is strong, and when central banks like the Reserve Bank of Australia (RBA) are perceived as neutral or
Explore this further here: USD/JPY trading.