After a steep rally this year, the US Dollar Index (DXY) and USD/JPY quickly dropped on profit-taking and yen intervention, taking the market spotlight amid persistent geopolitical risks and Fed rate hike worries.
The USD/JPY exchange rate has dropped to the crucial support level of 155.20, its lowest level since May 6, as the Japanese yen continues to outperform most major currencies this year. The pair has retreated by more than 4% from its year-to-date high, highlighting the dollar's recent weakness.
USDJPY looking for another low The dollar stopped short of turning things around after last week's intervention by Japan's Ministry of Finance. The pair heads towards 157.00 as traders look for a confirmation break at this level.
The United States joined Japan in buying yen to contain disorderly currency moves, protect the US Treasury market and prevent Japan's financial strains spilling into the global economy. The Japanese Yen strengthened sharply on Monday after Japan confirmed that Washington had joined Tokyo in a rare coordinated intervention to support the.
The Japanese yen strengthened significantly at the end of the week following reports of possible currency intervention by Japanese authorities, with speculation that the United States may also have supported the move. The Bank of Japan kept its interest rate at 1.00%, as expected, but said the economy is improving and inflation risks remain.
USDJPY consolidates within a wide range on Friday after falling over 3% after intervention of Japan's authorities, aiming to support weakening yen on Thursday.
USDJPY currency pair recently broke the support zone between the support level 160.50 (which reversed the price at the start of July) and the support trendline from February.
The BOJ may raise rates to 1.25% in September or October as inflation pressures grow, while yen intervention and a stronger Japanese yen weigh on USDJPY.
The USD/JPY exchange rate tumbled to its lowest level since May 14 as investors reacted to last week's Federal Reserve and Bank of Japan (BoJ) interest rate decisions and the latest interventions by the US and Japanese authorities. It plunged to 157.45, down by over 4% from the year-to-date high.
Months of volatility suppression as market forces continued to provoke Japanese authorities were finally released with a vengeance late last week, culminating in what appears to have been a coordinated intervention episode involving Japan's Ministry of Finance, the US Treasury and potentially South Korean authorities.
The initial pullback in USD/JPY was bid as buyers jumped in at the support I looked at in the post-Fed article. But then on Thursday night, right around the European open, selling began to show in USD/JPY.
According to recent estimates, the Bank of Japan may have spent more than $50 billion to support the yen.