Japanese yen dips, retail sales next

The yen has reversed directions today and is in negative territory. In the North American session, USD/JPY is trading at 144.59, up 0.33%. Japan releases a data dump later today, highlighted by retail sales for August. The headline reading is expected to rise to 2.8%, following a 2.4% gain in July.

Intervention keeps yen below 145

It was exactly a week ago that the yen went on a spectacular roller-coaster ride, as USD/JPY traded in a 450-point range. The yen has performed poorly this year, losing about 20% of its value against the dollar. As the yen continued to slide, the Bank of Japan and the Ministry of Finance (MoF) would warn that it was concerned, but the verbal rhetoric was not backed up with action until the MoF’s dramatic currency intervention last week. The MoF stepped in after USD/JPY broke 145, and the yen climbed as much as 2.5% after the intervention. Immediately, there were questions as to whether a unilateral action could stem the yen’s descent. Is 145 truly a line in the sand, or will Tokyo allow the yen to continue to fall?

The intervention gave the yen a brief shot in the arm, but it has been unable to consolidate these gains, for two reasons. First, the Federal Reserve is expected to remain hawkish at least into 2023, which has pushed US Treasury yields higher and widened the US/Japan rate differential. Second, the yen is caught in a tug-of-war between the MoF, which wants to see a stronger yen, and the BoJ, which is focused on maintaining an ultra-accommodative policy, which has kept JGB yields at low levels, even though this has hurt the yen. Governor Kuroda has said more than once that a weak yen is not necessarily bad, and has made clear that he will not change policy until it is clear that inflation is not transient (taking a page out of Jerome Powell’s playbook).

These conflicting signals have invited speculation in short positions in the yen and I would not be surprised to see dollar/yen make another attempt at breaking the 145 line shortly.

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USD/JPY Technical

• 144.81 is under pressure in resistance. 146.06 is next
• There is support at 143.21 and 141.88

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