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USD/JPY rallied and consolidated above the 150.00 threshold on Friday, rebounding from the slight dip in the previous trading session. This uptick was fueled by rising U.S. Treasury yields following higher-than-expected U.S. producer price index figures, which echoed the hot CPI report from earlier in the week.
By way of context, headline PPI clocked in at 0.9% y-o-y, one-tenth of a percentage point above estimates. Similarly, the core gauge surprised on the upside, reaching 2.0% y-o-y compared to the anticipated 1.6%, indicating a potential reacceleration in wholesale inflation‘s underlying trend.
US PPI DATA
Source: DailyFX Economic Calendar
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Limited progress on disinflation has led traders to temper their expectations for easing measures for the year, decreasing the likelihood of the Fed commencing its rate-cutting cycle at its May or June meeting. The hawkish reassessment of the central bank’s policy outlook has bolstered the greenback in recent weeks, as illustrated in the accompanying chart.
2024 FED FUNDS FUTURES – IMPLIED RATES BY MONTH
Source: TradingView
Source: CME Group
With price pressure persistently elevated throughout the economy, the Fed will be reluctant to start lowering borrowing costs anytime soon. In fact, policymakers might choose to postpone their first move until the latter half of 2024 to exercise caution. This scenario could result in higher U.S. yields in the short term, a favorable outcome for USD/JPY.
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| Change in | Longs | Shorts | OI |
| Daily | -3% | -2% | -2% |
| Weekly | 10% | -2% | 1% |
USD/JPY TECHNICAL ANALYSIS
USD/JPY climbed on Friday, consolidating above the 150.00 handle, but failing to regain its week’s high reached on Tuesday. Though the pair remains firmly entrenched in a solid uptrend, the exchange rate is approaching levels that could trigger FX intervention by the Japanese authorities to support the yen. For this reason, USD/JPY may struggle to maintain its bullish momentum for an extended period.
Focusing on possible scenarios, if USD/JPY deviates from its upward trajectory and turns lower, initial support appears around 150.00, followed by 148.90. From here onwards, additional losses could usher in a move towards 147.40.
On the flip side, if the bulls test the limits in defiance of possible currency intervention and propel USD/JPY higher, resistance emerges at 150.85. Further gains beyond this point might shift attention toward last year’s high located around the psychological 152.00 mark.
USD/JPY TECHNICAL CHART
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Hot US PPI Boosts USD/JPY, But Will FX Intervention Hold It Back
The foreign exchange market is known for its volatility and constantly changing values of currencies. In recent weeks, one particular currency pair has been making headlines due to its significant movements and potential for further fluctuations. The USD/JPY pair, which consists of the US dollar and Japanese yen, has been on a rollercoaster ride, with the latest surge in value being driven by the US Producer Price Index (PPI). While this may be seen as a positive development for the US economy, there are concerns about potential FX intervention by authorities in Japan that could hold back the pair’s gains. In this article, we will explore the factors behind the recent surge in USD/JPY, the potential impact of FX intervention, and what traders should consider when trading this currency pair.
Understanding the Relationship between USD/JPY and PPI
Before diving into the specifics of the recent PPI boost to USD/JPY, it is important to understand the relationship between these two factors. The PPI, as the name suggests, measures the average changes in prices that companies receive for their goods and services. An increase in PPI can indicate higher inflationary pressures, which can ultimately lead to an increase in the value of a currency. In this case, the strong PPI reading in the US has contributed to the increase in value of the US dollar against the Japanese yen.
Furthermore, the US and Japan have a unique economic relationship, with the two countries being one of the largest trading partners in the world. This means that any economic developments in the US can have a direct impact on the Japanese economy, and hence the value of the Japanese yen. The PPI boost in the US has also been driven by an increase in demand for goods and services, indicating a growing economy, which further strengthens the US dollar against the Japanese yen.
FX Intervention by Japan’s Authorities
The recent surge in USD/JPY has raised concerns among Japanese authorities, who fear that the sharp movements of the currency pair may have a negative impact on their exports. As the value of the Japanese yen decreases, it becomes more affordable for other countries to purchase Japanese goods, making them more competitive in the international market. To counter this, Japan’s Ministry of Finance has announced that they are closely monitoring the developments in the foreign exchange market and are ready to intervene if necessary. This signals their aim to keep the yen weak and maintain the competitiveness of their exports.
Impact on Traders and Practical Tips
While the intentions of Japan’s authorities for FX intervention may be understandable, it can have a significant impact on traders who are trading the USD/JPY pair. Traders should be aware that FX intervention can result in sharp movements in the currency pair, which may lead to significant gains or losses. Moreover, it is important to keep an eye on any official statements from Japanese authorities, as they can provide valuable insights into their future intervention plans, giving traders a better understanding of the market sentiment.
Much like any other currency pair, proper risk management is crucial when trading USD/JPY. With potentially unpredictable movements due to FX intervention, traders should consider implementing stop-loss orders to mitigate their risks. Additionally, staying up to date with economic developments and market sentiment can help to make informed trading decisions and identify potentially profitable opportunities.
Case Study: USD/JPY Surge Day After PPI Release
To get a better understanding of the impact of PPI on the USD/JPY pair, let’s look at a day after the latest PPI reading was released. On July 14th, 2021, the US Bureau of Labor Statistics announced a significant increase in PPI, which was above market expectations. As a result, the USD/JPY pair saw an immediate spike in value, reaching its highest level in more than 15 months. This case study highlights the direct impact of economic data on currency pairs and the potential opportunities for traders to capitalize on these fluctuations.
First-hand Experience: What Traders Need to Know
As a currency trader, I have been closely following the recent developments in the foreign exchange market and the impact they have had on the USD/JPY pair. With the current economic landscape and the potential for FX intervention, my advice to fellow traders is to stay vigilant and informed. Keep track of any official statements and economic data releases, as they can significantly affect the value of the USD/JPY pair. Always have a clear trading plan and stick to proper risk management strategies to navigate potential volatility in the market.
In Conclusion
The recent PPI boost in the US has had a significant impact on the value of the USD/JPY pair, with traders eagerly awaiting the next steps from Japanese authorities. While the potential for FX intervention looms, traders should stay informed, implement proper risk management strategies, and be prepared for potential volatile movements in the currency pair. By keeping a close eye on economic developments and market sentiment, traders can capitalize on potential opportunities in this ever-changing foreign exchange market.
