US and Japan tackle currency moves, USDJPY at 24-year high


USD/JPY News and Analysis

  • US and Japan agree to work together to tackle unwanted currency volatility (G20 meeting Friday and Saturday)
  • Key USD/JPY technical levels ahead of US CPI data tomorrow
  • Key Risk Events: US CPI, Michigan Retail Sales and Consumer Sentiment

U.S. and Japan agree to address unwanted currency volatility

On Tuesday, US Treasury Secretary Janet Yellen and Japanese Finance Minister Shunichi Suzuki agreed to work together to tackle soaring energy and food prices as well as unwanted volatility in the foreign exchange market.

It is no secret that the yen has depreciated significantly, registering sharp declines against the G7 currencies. The U.S. dollar, meanwhile, has seen just the opposite and recently hit levels not seen since 2002.

G7 countries are encouraged to follow a floating exchange rate regime, which means that prices are determined by demand and supply, instead of allowing countries to intervene directly in the foreign exchange market whenever they seek to strengthen or weaken the local currency. However, the G7 agrees that excessive volatility and disorderly moves can harm economic and financial stability, as Japan’s Suzuki mentioned, “we are watching the market carefully with a high sense of urgency.”

Key USD/JPY Technical Levels to Consider

USD/JPY levels were well defined as price action hovered around the previous high of 137. However, yesterday we saw the Dollar extend its gains once again, sending USD/ JPY above October 1998 high of 136.89. Since then, the pair has been trading lower, but there is still a fair amount of USD-biased event risk that could support the USD in the near term (see economic calendar below).

Resistance returns via the 136.89 level, then the September 1998 level of 139.10 is the last level blocking a print of 140. Support comes in at 135.60 followed by 135.

USD/JPY daily chart

Source: Trading View, prepared by Richard Snow

The monthly chart identifies all the reference points where the price action has pivoted before. Given the recent upside move in USD/JPY, we could be looking at a push towards 139.90. A sharp upside surprise in CPI data tomorrow could push the pair higher as we count down to the FOMC meeting on the 27th.e.

USD/JPY monthly chart

USD/JPY Price Outlook: US & Japan to Tackle FX Moves, USDJPY at 24-Year High

Source: Trading View, prepared by Richard Snow

Upcoming Event Risk: U.S. CPI, Michigan Retail Sales and Consumer Sentiment

Japanese PMI data surprised on the upside, but the 9.2% figure is the lowest figure since January this year. US PPI data is due Thursday and is expected to be in line with the May figure of 0.8%. However, the most significant scheduled event risk this week comes in the form of the US CPI. If the expected figure of 8.8% materializes, it would mark a return to the trend of higher inflation impressions after April’s relative decline – potentially boosting USD/JPY.

Honorable mentions, at least in terms of the US growth story, go to US retail sales data and the University of Michigan consumer sentiment report. This version of consumer sentiment has fallen to an all-time low dating back to the 1970s and is expected to enter sub-50 territory. While we should see any downside surprises in these data impressions, it is very unlikely have an impact on the Fed and its aggressive pace of policy normalization. Jerome Powell mentioned that we may see some difficulties in the economy, but inflation (price stability) remains the Fed’s number one priority.

USD/JPY Price Outlook: US & Japan to Tackle FX Moves, USDJPY at 24-Year High

Customize and filter live economic data via our DaliyFX economic calendar

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnotowFX

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