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USDJPY D1 09 26 2022 1325


The USD has pulled higher , setting new cycle lows for EURUSD, GBPUSD and in other USD pairs, though with the notable absence of the USDJPY on the list as the market respects the risk of Bank of Japan intervention, at least at the margin. Still, the directional sympathy in USDJPY to the USD direction elsewhere has been in evidence since the pair bottomed below 142.00 overnight, trading above 143.00 as of this writing. More importantly, the massive surge in US long treasury yields to new cycle- and 11-year highs are piling on the pressure for the Bank of Japan to change its policy. US treasuries are the dominant driver across markets. 

The USDJPY situation played out largely as one might have anticipated after the FOMC took US yields higher and the Bank of Japan continued to take a stand on its currency policy and then made good on its intervention threats shortly after USDJPY breached 145.00 to the upside, taking the pair all the way back below 141.00 at one point before the price action stabilized. Now, the upside pressure has ratcheted significantly higher for the pair as the key coincident indicator for USDJPY historically, a longer-dated US treasury yield like the 10-year benchmark, surged yesterday by nearly 20 basis points. Without the BoJ’s presence and threats, we would likely be well on our way to 150.00. How long can the market stand to sit back before challenging the BoJ once again? It doesn’t seem a war the latter can win as long as Kuroda and company insist on staying pat with the current policy of freezing yields out to 10 years as US treasury yields march ever higher… Plenty of danger for market participants wanting to make that challenge, however, as the BoJ/MoF have shown tremendous determination in the past, at least when intervening against JPY strength as in 2003.  

USDJPY W1 09 26 2022 1326


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