On Wednesday, analysts at ING suggested that the USD/JPY currency pair could potentially return to the levels of 158.50/159.00 if the Federal Reserve maintains a hawkish stance in its upcoming announcements. The observation follows the Bank of Japan's (BoJ) significant intervention in the currency market on Monday, which analysts estimated to involve around 5.5 trillion yen, or approximately $34 billion. This intervention was noted as a part of Japan's strategy to counter the consistent weakening of the yen.
The Bank of Japan's actions were seen as an attempt to disrupt a one-way depreciation trend of the yen. However, analysts at ING, including Global Head of Markets and Regional, Chris Turner, acknowledged the challenge posed by the prevailing strong dollar trend. They expressed skepticism about the possibility of Tokyo setting a definitive threshold, or 'line in the sand', to defend the yen's value.
ING's analysis also pointed to other factors that could influence the yen's strength. A potential broad market shift to a risk-off sentiment following the Fed's announcements could provide additional support to the yen. They indicated that a significant drop in equity markets and increased volatility might lead to value-at-risk (VAR) driven deleveraging of carry trades, which would likely benefit the yen. Currency pairs such as AUD/JPY and MXN/JPY were mentioned as particularly susceptible in such market conditions.
The speculation about USD/JPY's movement is tied closely to the Federal Reserve's policy direction, which has significant implications for currency valuations. As market participants await further cues from the Fed, the yen's position remains a focal point of interest, especially in the context of recent interventions by the Japanese authorities.
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