Suspected Japanese intervention and less-hawkish remarks from senior Fed officials have driven USD/JPY down about 300 pips toward the 155.00 handle, unwinding the rate-hike expectations Chair Kevin Warsh set at Jackson Hole.
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USD/JPY slides toward 155.00 as intervention, Fed hike doubts collide
The yen's second-day surge has carried USD/JPY down roughly 300 pips toward the 155.00 handle, as suspected Japanese intervention and softer Fed-official remarks unwind the rate-hike bets Chair Kevin Warsh set at Jackson Hole.
The Bank of Japan needs "a more nimble approach with rate hikes" and "a different response from the conventional semiannual rate-hike pace," Hajime Takata, a BoJ board member, said Wednesday, adding the central bank should "consider a broad range of options, not just a 0.25% rate hike each time."
USD/JPY traded around 158.75 in London, its lowest since Aug. 24, after sliding from roughly 159.60 to 158.20 in North American hours Tuesday before recovering to 159.00. The dollar index slipped to about 99.55 after touching 99.86, its strongest since Aug. 14, while WTI crude held above $92 a barrel on Middle East hostilities. Money markets now price about 49 basis points of BoJ tightening by year-end, up from roughly 22 basis points before the late-July intervention episode, with some traders floating a 50-basis-point move at the Sept. 18 meeting.
A sustained break below 155.00 — where the August low of 155.23 and May low of 155.03 converge — would strengthen the bearish technical case and could draw follow-up selling toward 154.00 and then 153.00, pressuring the global carry trades that borrow yen. The August jobs report due Friday and the Fed and BoJ decisions in the second week of September will decide whether the unwind extends or stalls.
Why the yen is rallying
There has been no official confirmation of intervention. The price action has been notably smooth rather than the sharp, disorderly moves normally associated with official action, though a rate check remains plausible. Governor Kazuo Ueda said Tuesday the BoJ will discuss whether to raise rates at its Sept. 17-18 meeting as policymakers weigh growing inflation risks, reinforcing expectations of another increase this month.
The dollar side of the pair is doing the yen no favors. Senior FOMC officials have struck a less hawkish tone than Warsh, whose Aug. 28 remarks — "we must be confident that inflation is moving sufficiently toward the Fed's 2% target. If not, our work remains unfinished" — had revived bets on further tightening. That divergence, layered on top of suspected Ministry of Finance intervention, has delivered the bearish break that sent the pair back to the levels seen around the lows of the intervention episode in late July and early August.
Levels to watch
On the upside, minor resistance sits around 156.67, with the 158.00-to-158.90 zone — where the 200-day average converges — now marking a major resistance area. A weak US labor-market reading Friday could drive a decisive break below 155.00, while a stronger report may offer USD/JPY some respite, especially with oil still climbing.
This article is for informational purposes only and does not constitute investment advice.
