Japanese yen slides post BOJ, do we need to be on intervention alert?

Market Summary:

The Bank of Japan finally ditched negative rates after eight years to take their interest rate form -0.1% to 0% and abandoned YCC control, yet ETF purchases are set to continue until further notice
The fact that the Japanese yen was broadly weaker shows not only was this already priced in, but that markets expected more from the BOJ in terms of tightening
USD/JPY was the leader among yen pairs, rising nearly 1.2% during its best day in six weeks and second best since early November, closing just beneath the 151 handle
GBP/JPY above its YTD high to reach its most bullish level in seven months, and whilst EUR/JPY saw an intraday break to new highs it puled back ahead of the NY close
The weaker yen helped the Nikkei 225 extend its rally for a third day and close marginally above 40k
The BOJ’s next 10bp hike has been fully priced in for October according to Bloomberg, with no real conviction of a hike much sooner Canada’s inflation data undershot expectations once again, bolstering bets of a BOC easing, with Bloomberg fully pricing in a 25bp cut in July
USD/CAD initially taped a new YTD high earlier in the session but the stronger US dollar saw the pair reverse to close the day with a shooting star candle
The RBA held interest rates at 4.35% and removed their slight hawkish bias, which excited traders enough to begin repricing cuts, sending AUD/USD t just shy of my 65c target to a 9-day low
Gold continues to hold above its previous record high and trades within a tight range, which can be indicative of incoming volatility (with the trigger likely to be the FOMC meeting)

You can get a good feel of relative strength among FX majors by looking at how they performed against the weaker Japanese yen on Tuesday. GBP and EUR are clear leaders, having broken above cycle highs although USD/JPY was the strongest performer on the day. Despite it bullish outside day, NZD is clearly a laggard given how much it has fallen from its February highs compared to its FX major peers.

Of course, this brings us to an important question. Will the BOJ or MOF now become vocal about a weaker currency, as they have in the past? Whilst they remain adamant they do not fight a weaker yen, they do not like their currency to fall too quickly. And the rate at which the Japanese yen declined across the board yesterday is surely to raise a few eyebrows among officials, given the levels then yen is now trading at and the speed it got there. And this could lead to verbal intervention from BOJ or MOF officials if the currently level of volatility and direction persists.

Events in focus (AEDT):

12:15 – China PBOC 1 and 5-year loan prime rates
13:00 – Inflation expectations (Melbourne Institute)
18:00 – UK CPI
21:00 – China Foreign direct investment
05:00 – FOMC interest rate decision, statement, updated staff forecasts
05:30 – Jerome Powel press conference

USD/JPY technical analysis:

The rise of USD/JPY picked up speed after finding support around 149, then proceeded to tap the 1-day and 1-week implied volatility levels after the BOJ hiked their interest rate. But the fact it has paused below 149 and around the initial 1-week implied volatility level to me suggests it may need to retrace. And we’re already seeing early sighs of that in today’s Asian session.

RSI (14) has formed a bearish divergence in the overbought zone and momentum is turning lower from the 151 handle. Given the bias for a less-dovish / more-hawkish than expected Fed meeting, the bias is for a break above 151 – even though this risk verbal intervention from the BOJ and MOF the closer it gets to 152. Ultimately the bias is for a small retracement today in Asia, and doubt we’ll see prices break beneath the 150.40/50 Zone.

View the full economic calendar

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.