Explainer: What happened with USDJPY?

• Strong US JOLTS data pushes USDJPY beyond 150.00
• Currency pair later experiences aggressive selloff
• Weak yen supporting speculation of government intervention
• However, market still guessing what triggered spike in yen 
• USDJPY remains bullish with 150 key level of interest

Investors were in a frenzy on Tuesday after the USDJPY collapsed almost 300 pips in a matter of minutes.

This bombshell development ignited expectations that Japan’s government may have intervened to support the currency. However, the radio silence from Japanese officials left market watchers scratching their heads, guessing whether this was the case or not.

With the USDJPY clawing back most of its losses and cautiously moving back in the direction of 150.00, most are looking for answers and questioning what to expect next.

Here, we’ll explain what happened with the USDJPY, why it’s a big deal, and how it could impact your trading.

What exactly happened?

On Tuesday, the USDJPY pushed above 150.00 after US job openings (JOLTS) unexpectedly increased in August, raising questions around more rate hikes from the Fed. After peaking at 150.16 for the first time since October 2022, prices collapsed nearly 2% to 147.33!

The context

Last week, we discussed how the USDJPY was a ticking timebomb because it was trading at levels weaker than last year when Japan intervened. There was already chatter around 150 acting as a key level that could trigger government action.

Why did it happen?

The yen has depreciated roughly 12% against the dollar year-to-date. This puts pressure on Japan’s economy by making imports for many essentials more expensive, prolonging inflation which is above the Bank of Japan’s (BoJ) 2% target.

After USDJPY pushed beyond the 150 threshold, the aggressive selloff led to most speculating that Japan’s government intervened by purchasing large amounts of yen and selling dollars. This argument was supported by the fact that Yen was the sole G10 gainer vs USD yesterday.

Other possible triggers?

Markets are still guessing what exactly triggered the spike in the yen on Tuesday.

Other than possible government intervention, there is talk about a rate check by the BoJ or simply jittery markets in response to the USDJPY touching 150.00.

What is a rate check?

Rate checks are usually seen as a strong warning of potential currency intervention. This is when central bank officials call dealers and ask for buying and selling rates for the yen. The BoJ is said to have done this 8 days before intervening back in September 2022.

What could happen next?

Well, the good news is that investors will know whether Japan intervened and, if so, how much it spent at the end of this month when the Ministry of Finance releases monthly intervention data.

In the meantime, yen volatility is likely to remain a major theme – especially if prices push back towards the psychological 150.00 point.

Will the USDJPY keep pushing higher?

Focusing on the fundamental outlook, the threat of intervention around the 150.0 level could keep USDJPY bulls meek. Especially after the aggressive selloff witnessed in the previous session.

However, expectations around US interest rates staying higher for longer while the BoJ maintains its ultra-loose monetary policy could keep the USDJPY buoyed. This standoff between conflicting forces could place the currency pair on a rollercoaster ride.

Technical outlook

The USDJPY remains firmly bullish on the daily charts despite the aggressive selloff on Tuesday. Bulls remain in a position of power above the 147.50 level. A strong daily close above 150.00 could open a path towards 151.94. Should prices slip below 147.50, a decline towards 146.70 and 144.90 could be on the cards.

USDJPY BoJ Rates inflation SMA MACD