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The USD/JPY is nearing 144.00 on rising rates and decreased risk appetite ahead of Powell's speech

Daniel Rogers

Sep 26, 2022 14:34

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The US dollar rose against the Japanese yen to a new intraday high of 143.60 as trading began in Tokyo on Monday, adding to the recovery gains seen on Friday. By doing so, the yen pair has reversed its decline from the 24-year high the day before, which had been brought about by Japan's action to protect the national currency.

 

The recent rise in the value of the yen may be attributable to Naoyuki Shinohara, Japan's former top currency ambassador. Shinohara told Reuters that Japan would focus on smoothing operations to reduce volatility rather than intervening in the currency market to protect a symbolic level, such as 145 yen per dollar.

 

From Thursday's highest levels since 1998, the USD/JPY quickly reversed course as Japan's senior currency ambassador Masato Kanda confirmed that they had intervened in the FX market. As he put it, the government "took significant action in the foreign exchange market."

 

Positive USD/JPY buyers are buoyed by rising US PMIs, rising Russia-Ukraine tensions, and hawkish central bankers other than the Bank of Japan (BOJ).

 

Recent US S&P Global PMIs for August, issued on Friday, showed an increase in the Manufacturing index to 51.8 from 51.5, and an increase in the Services index to 49.0 from 44.6. In a statement released on Friday, Federal Reserve Chair Jerome Powell said, "We are committed to employ our capabilities." Fed Vice Chair Lael Brainard then added that low-income people are feeling the effects of "hard" inflation. Despite the economy's continuing speed, Atlanta Federal Reserve President Raphael Bostic told CBS' "Face the Nation" over the weekend that he still believes the central bank can cut inflation without substantial job losses.

 

As President Zelenskiy of Ukraine was quoted as saying in a CBS interview, "Putin's nuclear threats may have been a bluff, but now it may be a reality," While Russia's foreign minister said annexing territory hosting widely criticized referendums would be met with complete protection from Moscow, the United States warned of "catastrophic ramifications" if Moscow utilized nuclear weapons in Ukraine.

 

As yields backed the US currency to remain strong despite aggressive Fedspeak and a rate hike, market fears caused Wall Street to close in the red. Although this occurs, S&P 500 Futures only fall by a few points as 10-year US Treasury yields climb by four basis points to 3.74 percent.

 

Going forward, USD/JPY buyers are expected to keep their upper hand while keeping a careful eye on any signs from Japan's engagement and words by Fed Chairman Jerome Powell, both of which are due out on Tuesday and Wednesday.

 

Although the recent higher lows and firmer RSI, which is not overbought, favor USD/JPY buyers, conviction requires a daily closing above the 13-day-old resistance line, now at 144.00 as of press time. Conversely, the downside is capped by the 21-day moving average around 142.25.

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