JPY – The yen is severely overbought technically; beware of intervention risks.

Even though the Bank of Japan (BOJ) raised interest rates last month, the policy rates of the Federal Reserve and the BOJ still differ by 275 basis points. The Fed maintained its high interest rates and released hawkish signals last month. Market arbitrage funds continue to borrow low-interest yen and buy high-yield dollar assets, pushing the USD/JPY exchange rate higher, currently hovering around 162. Japanese finance ministry officials have increasingly emphasized their warnings, stating they are closely monitoring exchange rate fluctuations and will not rule out any intervention measures. The market generally believes that 160 is the implicit intervention range for the Japanese government; historically, official market intervention has occurred when the exchange rate has reached this level.

Due to the U.S. Independence Day holiday, the non-farm payroll data, originally scheduled for Friday, will be released tonight. The market expects an increase of 110,000 non-farm jobs, compared to 172,000 previously, with the unemployment rate remaining at 4.3%. Three consecutive months of strong non-farm payroll data have supported a hawkish shift by the Fed, with federal funds futures indicating a probability of a September rate hike of approximately 63%.

As seen on the technical charts, the moving averages remain in a bullish alignment, and the USD/JPY pair continues its overall upward trend. However, the Relative Strength Index (RSI) and Stochastic Oscillator are currently deeply overbought, suggesting that upward momentum may gradually slow. Support will be seen at the upward trendline around 161.90, which is also the current location of the 10-day moving average. Next, watch the 25-day moving average at 160.80. A break below this level could indicate a potential correction, with the next levels to watch being the 50-day moving average at 159.60 and 158, with extended support at 157.30. On the upside, watch 163, with stronger resistance estimated at 163.50 and 164, followed by the 165 level.

Forecast Trading Range:
Resistance: 163.00 – 163.50 – 164.00 - 165.00
Support: 161.90* – 160.80 – 159.60 - 158.00 - 157.30

This Week's News Highlights:
29/6
Japan's May Retail Sales MoM +1.9%, YoY (Forecast +5.3%)
Japan's May Large Retailer Sales YoY +5.0%

1/7
Japan's June Manufacturing PMI at 54.8

Any questions? contact our professional analysis team