USD/JPY Breaks 161! How Will It Move Amid Rising Yen Intervention Risks? Weekly FX Review: June 24 - June 28

The trades for the week totaled +3,909 USD.

USD/JPY and Cross Yen Pairs
This week, the USD/JPY pair rose from the 159 yen level to the 161 yen level, surpassing the psychological threshold of 160 yen, which had a significant market impact. Cross yen pairs also showed a strong upward trend, with EUR/JPY reaching the 172 yen level, marking its highest point since the euro's inception. This yen depreciation has heightened expectations of further intervention by the Bank of Japan.

Key Points for Next Week

1. U.S. June Employment Report and Powell’s Speech
On July 2, Federal Reserve Chair Powell is expected to address the market's view on the May PCE deflator (released June 28). The June ISM Manufacturing and Non-Manufacturing Indices will also be scrutinized for their price and employment indices. The June employment report, due July 5, is anticipated to show an unchanged unemployment rate at 4.0%, with non-farm payrolls expected to increase by 185,000, down from May's 272,000. The report will be closely analyzed to determine the true state of the labor market.

2. Australia's May CPI
The May Consumer Price Index (CPI) in Australia showed a year-on-year increase of 4.0%, up from April's 3.6%, marking the highest rise in six months and exceeding market expectations (3.8%). This has raised the probability of a 25 basis point rate hike by November from 0% to 60%, with no rate cuts expected this year. Consequently, the AUD has risen 0.5% to 0.6684 USD. VanEck's Russell Chesler noted that Australia might be one of the few developed nations to implement a rate hike.

Currency Focus

USD: Neutral. The direction will depend on Powell's speech and the June employment report.

JPY: Neutral. Watch for the Bank of Japan's policies and the risk of yen-buying interventions.

EUR: Bearish. Watch for political instability in France and Eurozone inflation rates.

AUD: Bullish. The rise in May's CPI has increased rate hike expectations, supporting the AUD.

ZAR: Neutral. The currency is sensitive to political developments.

GBP: Neutral. The July 4th general election's outcome will be crucial.

CAD: Neutral. The June employment report will be key, especially wage data.

P.S.

With the yen hitting a 38-year low against the dollar, questions about how high the USD/JPY can go and when interventions will occur are on the rise. The current options market anticipates further yen depreciation. If the USD/JPY rises gradually, it becomes harder to justify intervention, but a sharp spike could trigger it. According to Deutsche Bank's Ogawa, interventions are likely at levels between 163-165 yen. While predictions are never certain, targeting a sharp rise to this level could be strategic.

Have a great weekend! 😊