USDJPY Forecast: Pair Enters New Record Lows As BoJ Delays Market Intervention

Summary:
• The USDJPY trading pair reached the lowest level since 1986, as Japanese monetary policy officials avoided mentioning intervention level.

USDJPY extended its bullish run on Tuesday, gaining 0.1 percent to trade at new 38-year highs of 161.65. The market is pushing the pair to new highs as the Bank of Japan delays entry into the market. Japan’s Finance Minister Shunichi Suzuki on Tuesday remained non-committal on the potential intervention level, only stating that the government was closely monitoring the situation. The last market intervention by the BoJ happened in May and reportedly involved pumping $62.23 billion into the forex market.

However, the yen’s persistent weakness has sent it back to the intervention territory less than two months in. Therefore, many traders will likely hold on to their bullish positions on the USDJPY pair until the BoJ does more than verbal intervention.

The fact that the dollar is hitting record highs against the yen at a time when markets are betting on Fed interest rate cuts is telling.  Last month, the central bank surprisingly failed to pause its bond purchase program, which has been one of the key drivers of the USDJPY uptrend. However, the bank will reduce its purchases starting July, and that could provide support for the yen. That said, Vanguard has warned that the USDJPY pair could hit 170 if the BoJ’s policy change is not strong enough.

Federal Reserve Chairman Jerome Powell’s speech on Tuesday is expected to inject fresh volatility into the USDJPY pair, as will the au Jibun Bank Japan Services PMI reading for June. Meanwhile, both the S&P Global and the ISM US Manufacturing PMI figures for June came in lower than expected, and that will put a limit on gains by USDJPY.

Technical analysis

USDJPY is currently on the uptrend, and the upside momentum will likely continue if the buyers keep the pair above the 161.50 pivot mark. That could see the pair head further up to encounter the first resistance at 161.75, and extended control by the buyers could see the second resistance encountered at 162.00. On the other hand, a move below 161.50 will favour the sellers to take control, with the first support likely to come at 161.24. Extended control by the sellers at that point will break the support and the resulting momentum will invalidate the upside narrative. Also, it could move the action lower to test 161.05.