USD/JPY trades above key level as investors await BoJ intervention: Asia-Pacific outlook

Japanese Yen, USD/JPY, Bank of Japan, Sentiment, Technical Outlook – Talking Points

• Asia-Pacific shares face headwinds from higher government interest rates to end the week
• Japanese inflation data in focus as a large volume of options trades set to expire
• USD/JPY over 150 puts traders on alert for possible BoJ market intervention

Friday’s Asia-Pacific Outlook

Asia-Pacific shares are looking at a mixed opening as higher US interest rates weigh on global sentiment. The Wall Street the trading session did not provide much hope for traders. The benchmark S&P 500 fell 0.8 percent on Thursday. Treasury yields rose across the curve, but more so along the longer leg, easing the 10-year/2-year yield gap inversion to around -38 basis points. While peak hawkishness appears to be the current view in overnight index swaps and Fed fund futures, hawkish comments from several FOMC members spooked equity investors.

The British pound gained after news of Liz Truss’ plans to step down hit the headlines, but early strength was trimmed, and GBP/USD traded almost unchanged shortly after the NY closing bell. A new successor could be named as soon as Monday, with Boris Johnson – the former prime minister who was recently ousted – and Rishi Sunak among others. Truss’s departure likely puts an end to the turmoil in the Gilt market.

This morning, South Korea’s producer price index (PPI) for September crossed the wires at 0.2% from the month before, up from -0.4% in August, indicating rising factory prices. New Zealand’s trade balance is due this morning. The weak Kiwi The dollar has added costs to imports, and a deficit could continue in the near term. The island nation reported a deficit of 2.4 billion in August. A growing deficit would likely weigh it out NZD.

Japan’s September consumer price index (CPI) is expected to exceed the 3.0% year-over-year mark. That would be up from 2.8% in August. As with NZ, a weak one Yen adding to inflationary pressures, complicating the Bank of Japan’s monetary efforts. The yen is on track to weaken against the dollar for the twelfth day, an impressive feat. With USD/JPY above 150, we can likely expect aggressive jawbones from Japanese policymakers.

Technical Outlook for the Japanese Yen

USD/JPY is now above the 150 level but just barely. The BoJ may choose to intervene around these levels, but technically prices look set for a short-term pullback. That could mean a short dip to the rising 9-day exponential moving average (EMA), which has supported prices back to August. The Relative Strength Index hit its highest levels since early 2022, reflecting the aggressive JPY sell-off over the past 12 days.

USD/JPY Daily Chart

Diagram created with TradingView

— Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comment section below or @FxWestwater on Twitter