USDJPY retreats from 150 after volatility spike

On Tuesday (Oct 3rd), USDJPY spiked past the psychologically important 150 level.

However, this FX pair then swiftly pulled back, falling to as low as 147.291, before paring declines since.

This sudden recovery in the Yen versus major peers such as USD, EUR, and GBP has fuelled market speculation that the Bank of Japan was forced to intervene in the currency markets yesterday.

Why did USDJPY even get to 150?

The US dollar strengthened against all of its major peers yesterday, except against JPY, after the economy continued to show its resilience.

The US released better-than-expected September manufacturing data, along with a higher-than-expected August JOLTS job openings (9.6 million vs. 8.8 million forecasted).

Such data may force the Fed to go for another hike this year, even as the Bank of Japan sticks with its negative interest rates.

This translated into massive upward pressure for USDJPY, before the dramatic pullback.

Did the Bank of Japan intervene?

It’s not officially confirmed.

Japanese policymakers have kept mum about it so far, refusing to comment on such market chatter.

Still, the very fact that JPY was the sole gainer vs USD yesterday suggested that the Japanese Yen got “special help”.

These rumours were also perhaps fuelled by recent commentary out of Japanese government officials about potential currency interventions.

What’s next for USDJPY?

Investors will now pay a very close attention towards the Bank of Japan’s public commentary about any potential adjustments to its monetary policy settings, or even regarding the weakening Yen.

The BOJ may change the timing of a potential policy adjustment if the USDJPY moves sharply above the psychologically important 150 once more.

Also, look out for the end-of-the-month report by the Japanese government about its currency interventions.

Looking at the price charts, USDJPY may continue to consolidate around 149-150.

After all, the mental scars may linger among traders who had just only dared to bet on the Yen weakening past 150 against the US dollar, only to be foiled so dramtically.

Bloomberg model estimates a 75.3% chance of USDJPY trading at 146.73-150.89 range within 1 week timeframe.

A 21-SMA may act as a strong support level at 148.24 if the JPY bulls overtake the initiative (or further intervention is undertaken by Japanese policymakers), with the 147.87 prior resistance-turned-support zone lying further south.