USD/JPY: Yen Slump Raises Intervention Risks as Market Sentiment Improves

Markets sentiment has remained positive in the past 24 hours or so, after some of the recent AI disruption nerves were soothed by Anthropic unveiling a raft of new partnerships yesterday. With stocks rising, the dollar has softened against most currencies, including the euro, sterling and the commodity currencies, with the Aussie finding fresh support after inflation data came in above expectations. The greenback has, however, extended gains against the yen, which in the last couple of days has weakened sharply on the back of reports that PM Takaichi had voiced concern about additional BoJ tightening. Overnight, she added that authorities are watching FX moves with a high degree of urgency, reviving talk of potential intervention.

How Far Will the Japanese Yen Fall Before Potential Intervention?

With the dollar yen, rising as the yen tumbles, crosses such as are making even bigger gains, given the positive sentiment towards the Aussie dollar and data coming in stronger overnight. But as the yen tumbles, intervention risks increase.

Reports of Prime Minister Sanae Takaichi striking a firmer tone on rate hikes, alongside the nomination of two new board members, have stirred speculation that the Bank of Japan will be blown off course and that has caused a sizeable drop in the yen across the board. But I think that the broader policy trajectory still looks intact despite the latest political developments. Whether this will be enough to make the currency turn without meaningful support from the government in terms intervention remains to be seen.

Government nominees Ayano Sato and Toichiro Asada, both University professors, are set to replace Asahi Noguchi and Junko Nakagawa, who step down in the coming months. Markets appear to assume the newcomers will lean more to the dovish side, potentially forming a bloc resistant to further tightening. Yet that may be overstated. Noguchi was already considered the most dovish member, while Nakagawa tended towards the middle ground. The net shift in the board’s hawk–dove balance therefore looks modest at best. So, the marker may be overacting slightly here. Still, we should now expect more nuanced debates and possibly split votes as policy normalisation progresses. With Tokyo inflation forecast to ease to 1.7% y/y (data is due on Friday or Thursday night for Europe/US), April appears unlikely for the next move. June seems the more plausible window, assuming firm wage growth proves stubborn enough to justify further tightening.

Positive Sentiment Aids USD/JPY Further Ahead of Nvidia Earnings

Overall, sentiment has broadly held up since the US open yesterday, after some of the recent AI disruption nerves were soothed by Anthropic unveiling a raft of new partnerships. There was very little immediate market reaction to President Trump’s State of the Union address last night. Elsewhere, oil prices edged lower on renewed hopes of a diplomatic breakthrough in Iran’s nuclear talks. We saw big gains in the Nikkei overnight and the FTSE has hit a fresh record high today. With tech enjoying something of a calm, the focus now turns to high-stakes earnings looming after the close. With unease around AI valuations still bubbling under the surface, Nvidia stock will likely need not only to beat consensus but also to deliver punchy guidance if it is to properly steady the ship.

Dollar Drifts Without Much Direction

Outside of the USD/JPY, the dollar has been all over the place. Fundamentally, there is not much in the way of fresh day today, and there was very little market reaction to Trump’s State of the Union address last night. The President focused heavily on economic strength and easing inflation, while still leaving the door open to tensions with Iran — albeit with diplomacy as his stated preference. US data yesterday did offer some underlying support to the greenback. CB rose to 91.2 in February, easily beating forecasts, and the previous month’s decline was revised less sharply than first thought. A handful of Fed speakers also crossed the wires, though none materially shifted expectations. Goolsbee reiterated that further progress on inflation is needed before rate cuts can resume. Cook suggested the neutral rate could drift lower over time, while Collins indicated rates are likely to remain on hold for the foreseeable future. (Thursday) and (Friday) are due later in the week.

USD/JPY Forecast: Technical Analysis and Levels to Watch

Despite the sizeable two-day rally, the USD/JPY has not yet broken the broader structure of lower highs that has been in place since rates peaked in January.

The key level to watch on the upside is at 157.66 — the most recent swing high. As long as that level remains intact, there is still a case to be made to expect some downside action on the USD/JPY.

At the time of writing, price was testing potential resistance in the 156.50 to 157.30 zone. This area had previously acted as support, and it is where the previous selling pressure had started from earlier this month.

On the downside, first support comes in at 155.65, marking last week’s high. Below that, 155.05 is another key level, corresponding to Monday’s high, when a hammer candle was formed on the daily chart.

If, in the coming days, we see rates drop back and post a daily close below 155.00, that would be a bearish signal for the USD/JPY forecast. And a break under 154.52 (the low from Tuesday’s thrust candle) would strengthen that view, potentially opening the door towards the low 150s. But we will cross that bridge if we get there.

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