It’s a tricky moment for USD/JPY as traders adopting a more cautious approach so far today. While the yen continues to be punished by the US-Iran conflict, the dollar side of the equation is also keeping firmer as the war drags on. Adding to that now is the bond market starting to ring the alarm bells with 30-year Treasury yields crossing back above the 5% threshold.
The fundamental backdrop continues to work against the yen and that is a tough landscape to go up against. And Tokyo officials surely know that very well. They have more than likely stepped into the market a few times already since last Thursday but that hasn’t done much to keep USD/JPY pinned down. In fact, we’re starting to see a bit of a pattern now:
The last few hits seem to come around 157.20 levels and that is precisely where we’re holding since Asia trading today. The pair is trading in a very muted range of just 20 pips since the open. Yes, it was also a Japanese market holiday but the price action above mostly reflects the kind of caution among traders in not wanting to push things too far.
With Japan’s ministry of finance (MOF) already appearing to draw a line on any move above the 157.20-30 region, traders are surely fearing that they might incur the wrath of Tokyo officials in knocking the pair back down again.
That being said, there’s still downside support closer to 155.50-70 levels. So, that remains a key region that the MOF has to get the BOJ to help them break through in doing their bidding. For now, traders are still respecting the fire power that Japan might have in pushing back against any further upside move.
However, I fear all it takes is one key catalyst from the war and it risks raising the defiance among market players towards Japan’s playbook
