Japanese Yen strengthens after intervention warning, while the US Dollar stabilizes.

Japanese Yen, USD/JPY, US Dollar, BoJ, Kanda, China PMI, Debt Deal – Topics to Analyze

  • Traders in the Japanese yen are eyeing the possibility of intervention.
  • The US dollar is treading water as government bond yields fell ahead of the debt deal.
  • The Chinese purchasing managers’ index disappointed and growth-related assets fell.

The Japanese yen rallied towards the end of Asian trading on Wednesday as markets reassessed the prospect of Japanese authorities intervening in USD/JPY.

Masato Kanda, Japan’s deputy finance minister for international affairs, hinted late on Tuesday that authorities could act to stop the falling yen. He said, “We will closely monitor movements in the foreign exchange market and respond appropriately if needed.”

On the subject of intervention, he further said, “If necessary, we will not rule out every option.

The Bank of Japan intervened directly several times last year when the USD/JPY rose. Initial yen buying at 137 did little to halt the rise, but the Bank persisted and continued to sell IUSD/JPY to a high of 152.

With USD/JPY above 141, the easing seems inevitable in hindsight. There is still potential for further verbal pleas to market participants.

The BoJ’s ultra-loose monetary policy remains in place for the time being, and today’s industrial production for Japan is not seen as helpful in moving away from this stance. Month-on-month, production fell 0.4% in April versus forecasts of 1.4% and 1.1% in the previous month.

On Wednesday, the focus in the upcoming sessions seems to be on the passage of the debt deal. After several statements from lawmakers in Washington overnight, they are expected to get over the line.

Apart from USD/JPY, the US dollar is stronger across the board, with high-beta AUD and NZD bearing the brunt as Chinese PMI numbers miss estimates.

China’s manufacturing Purchasing Managers’ Index came in at 48.8 in May instead of the expected 49.5 and non-manufacturing at 54.5 instead of the forecast 55.2, giving a combined PMI reading of 52.9 versus 54.4 previously.

APAC equities are all down, highlighting the prospect of slowing growth in the region. South Korea’s KOSDAQ is the only bright spot in today’s trading.

Government bond yields are steady at the start of European trading after falling overnight. The 2-year bond saw the sharpest declines, trading towards 4.4% today, down from 4.64% at the end of last week.

The fall in yields boosted gold prices as COMEX first-month futures are now trading back near USD 1,980 after bouncing off support at USD 1,936 yesterday.

Crude oil remains under pressure after yesterday’s slump. The WTI futures contract is below US$69.50 per barrel, while the Brent contract is below US$73.50 per barrel.

The full economic calendar can be viewed here.

USD/JPY LEVELS TO OBSERVE

USD/JPY hit a six-month high at 140.93 yesterday and this level could offer resistance ahead of the November 2022 high at 142.25 and a breakout at 143.50.

On the downside, support could be at the breakout levels of 138.75, 138.18, 137.91 and 137.77.

Chart created in TradingView

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