The USDJPY pair now appears to have entered a bullish consolidation phase and oscillated in a narrow range through the first half of the European session. Spot prices remained within striking distance of their highest levels since August 1998, around the 147.00 handle touched on Wednesday (13/10/2022) as investors braced for the crucial US CPI report. The US inflation figures will determine the size of the Fed’s next interest rate hike, which, in turn, will help determine the near-term trajectory for the US dollar and the USDJPY pair. Meanwhile, traders preferred to stay on the sidelines amid speculations of more currency market intervention by the Japanese authorities. In fact, Japanese Finance Minister Shunichi Suzuki reiterated earlier this week that the government is ready to step in and respond appropriately to excessive FX moves. Furthermore, Bank of Japan (BoJ) Governor Haruhiko Kuroda said on Wednesday that the government’s intervention last month to halt a one-sided depreciation move in the Japanese yen was appropriate. Nonetheless, the divergent policy stances adopted by the Bank of Japan (dovish) and other major central banks (hawkish), coupled with risk-on impulses, continue to undermine the safe-haven JPY. It is worth mentioning that the Bank of Japan has so far shown no inclination to raise interest rates. Adding to this, Japanese Prime Minister Fumio Kishida said that the BOJ needs to stick to its ultra-lose policy until wages pick up. On the contrary, markets have been pricing in another 75 bps Fed rate hike move in November, which remains supportive of the rise in US Treasury yields. The resulting widening of the US-Japan interest rate differential favors bullish traders. Hence, any meaningful pullback could be seen as a buying opportunity and is likely to remain limited, for now. Key Points
  • USDJPY is seen oscillating in a narrow trading range below the 24-year low touched on Wednesday.
  • Investors now seem to have moved to the sidelines and prefer to wait for the crucial US CPI report.
  • Fears of intervention by Japanese authorities also held traders back from placing aggressive bets.
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