JPY – The yen hits a 40-year low, with intervention risks escalating again

Tensions in the Middle East continue, and investors are selling the yen, pushing the dollar above 163.20 against the yen, a new low since December 1986. As tensions in the Middle East escalate again, market concerns about disrupted energy transport are pushing up international oil prices. Given Japan's heavy reliance on energy imports, the market anticipates that rising oil prices will widen Japan's trade deficit; investors are selling the yen and buying the dollar. Meanwhile, domestic factors in Japan continue to weigh on the yen. On the one hand, the interest rate differential between Japan and major European and American economies remains significant; on the other hand, the market expects Japanese Prime Minister Sanae Takaichi to continue implementing the so-called "proactive fiscal policy," relaxing fiscal discipline, which further increases downward pressure on the yen. However, with the yen hitting a near 40-year low again, the market is highly wary of the possibility of intervention in the foreign exchange market by the Japanese government and central bank.

From a technical perspective, the USD/JPY pair has maintained a high-level consolidation pattern recently, with the RSI turning sideways. The key level to watch is the 25-day moving average. Last week's pullback failed to break below this area, making the 25-day moving average at 162 particularly important. This level also coincides with the upward trend line. Another reference point is the July 3rd low of 160.47. If the exchange rate breaks below this area today, the recent price action will form a double-top pattern, indicating a high probability of a significant pullback in USD/JPY. Based on the cumulative gains since May, the 38.2% and 50% retracements are at 159.85 and 158.95 respectively, extending to the 61.8% level at 158. Resistance levels are expected at 163.50 and 164.20, with the stronger resistance estimated at the 165 level.

Forecasted Trading Range:
Resistance: 163.50 – 164.20 – 165.00*
Support: 162.00* - 160.47** - 159.85 – 158.95 – 158.00

This Week's News Highlights:
July 22nd - Chief Cabinet Secretary Minoru Kihara: Japan will respond appropriately to foreign exchange market conditions as needed.

Finance Minister Satsuki Katayama: Japan will take appropriate foreign exchange action as needed. No comment will be made on specific foreign exchange levels.

Focus:
Friday
Japan June CPI (07:30)
Japan July PMI (08:30)

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