Title: USD/JPY Surge Past 155 Raises Risk of Japanese Intervention: The Thanksgiving Turkey Trade
Original article by Dan Schmidt, InvestingLive.com
Rewritten and expanded for clarity, depth, and analysis
The USD/JPY currency pair recently surged above the critical level of 155, intensifying concerns of potential Japanese government intervention. This move has sparked new discussions among traders and analysts about what lies ahead for one of the most closely watched forex pairs. As the U.S. Dollar continues its rally and Japanese monetary policy remains ultra-loose, tensions are mounting. The situation is complicated by parallels to previous interventions and the seasonal timing, prompting market participants to refer to the USD/JPY as “the Thanksgiving Turkey.”
Below is a comprehensive breakdown of the circumstances driving the USD/JPY move, the risks of intervention from Japanese authorities, and what traders should watch next.
Key Highlights From the USD/JPY Rally
– USD/JPY rose above 155 for the first time since 1990.
– The pair had largely held below 152 throughout the last few months, a level widely seen as a red flag for the Bank of Japan (BOJ) and Ministry of Finance (MOF).
– The move above 155 has rekindled fears of potential intervention akin to Japan’s currency actions seen in 2022.
– Historically, significant interventions occurred when USD/JPY reached near or above these psychologically important levels.
– The seasonal timing of this move, particularly around Thanksgiving, aligns with historical instances of Japanese yen weakness.
Understanding Japan’s Concerns Over the Yen’s Weakness
The weakening yen has a broad range of negative implications for Japan. While a weaker currency can benefit exporters by making goods cheaper overseas, the yen’s persistent declines have become problematic for Japanese consumers and economic policymakers.
Reasons the Japanese Government May Intervene
– The yen’s depreciation increases import prices for essential goods like energy and food, stoking domestic inflation.
– Consumer sentiment and household consumption can decline amid rising cost-of-living pressures.
– Political pressure mounts on the government to counteract negative domestic effects of the weak currency.
– The sharp pace of depreciation, especially sudden spikes, tends to raise red flags more than a slow weakening.
Previously, when the yen fell below certain levels too quickly, Japan’s Ministry of Finance intervened in currency markets to stabilize the exchange rate.
A Historical Comparison: The 2022 Intervention Playbook
To understand the current situation, many point to Japan’s currency intervention in 2022. At that time, the yen had been steadily weakening, mirroring today’s dynamics. The Japanese government stepped into the market three times that year, spending more than $60 billion in total.
Timeline of key 2022 interventions:
– September 2022: Japan executed its first yen-buying intervention in 24 years as USD/JPY reached 145.
– October 2022: Further interventions followed as the currency dropped to 150 and beyond.
– These moves helped briefly stabilize the yen but led to mixed long-term success; structural economic factors continued to weigh on Japan’s currency.
The psychological level of 155 is now seen as the new “line in the sand” for many traders after 2022’s red lines have been eclipsed.
Why Does the Yen Continue to Weaken?
Several macroeconomic and policy-related factors are driving yen weakness against the dollar:
1. Diverging Central Bank Policies:
– The Federal Reserve continues to maintain a “higher-for-longer” posture on interest rates.
– In contrast, the Bank of Japan remains committed to ultra-accommodative monetary policy, including negative short-term interest rates and ongoing yield curve control (YCC).
– This interest rate differential makes the U.S. dollar far more attractive to investors, placing pressure on the yen.
2. Low Japanese Bond Yields:
– Japanese government bonds offer meager returns, making yen-denominated assets less appealing.
– Investors seeking better yields continue to favor the U
Explore this further here: USD/JPY trading.