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USDJPY Flashes Volatility As BoJ Remains Non-Commital on Intervention

USDJPY’s mad ride continued on Tuesday, rising by 0.60 per cent to trade at 157.24 at 12.37 UTC. The pair had a wide swing on Tuesday, rising to historic highs of 160. 20 before slumping to lows of 154.51 in the intraday session. The move was prompted by speculations of a possible intervention by the Bank of Japan, which was, however, not confirmed.

There are growing concerns in Japan the dollar’s strength against the yen is raising the country’s import bills, and that could adversely affect the economy. Japan finds itself in a dilemma whereby the inflation rate is stubbornly below the BoJ’s target of 2%, while the bank also wants to keep interest rates accommodative to spur economic growth. There is a near-unanimous agreement that the Federal Reserve will leave the current 5.25-5.50% interest rates unchanged in its announcement on May 1. That will leave the yen exposed, as investors will favor dollar-denominated securities, considering Japan’s low 0.1-0.1% interest rates.

While there has been growing confidence that BoJ will ultimately intervene in the forex market the coming days, some analysts argue that such an intervention could do little to save the yen from a further slump if the more far-reaching interest rates remain ultra-accommodative. On the other hand, however, there are strong signs that an intervention could be all that the BoJ needs at this time to strengthen the yen. The wide swing in USDJPY rate on Monday was attributed to traders dumping the dollar and buying the yen after it was widely reported that Japanese Banks were selling the yen en masse.

Technical analysis

The USDJPY pivots at 156.85, and the upside will prevail if action stays above that level. That will favour the bulls to move past 158.28, and potentially test 159.38.  On the other hand, a move below 156.85 will favour the sellers, with the pair likely to find support at 155.86. Furthermore, a continuation of that momentum could break the support and possibly test 154.97.