The USDJPY has been continually pushing higher as the market prices in aggressive Fed policy action. As long as the US keeps rising interest rates the USDJPY can keep moving higher as the interest rate differentials keep favouring USD strength over and above the JPY. However, the weaker the JPY becomes the more likely the Bank of Japan is going to act against it. A weak JPY is advantageous for Japan’s export market, but a strain on importers. So, here is what to expect as/if the JPY continues to rise.

Bank of Japan action

In June the USDJPY rose above 130 and the Ministry of Finance, the Financial Services Agency, and the Bank of Japan all met together. The conclusion of the meeting was that action would be taken, but no indication was given as to what that action would be.

USDJPY at 140 is hitting the right levels

If the USDJPY makes 140 then the pair will be hitting new daily technical highs and be making a strong indication that further JPY is ahead. See the chart at the top.

This will be a key level to watch for signs of JPY intervention. However, it is probably unlikely that the BoJ would intervene here as the gains are clearly due to US policy and it would be very hard to fight the USD bids right now.

If the BoJ does intervene look at EURJPY and GBPJPY

The GBP and the EUR both have medium-term reasons for weakness with recessions looming for both countries. So, should the JPY suddenly have reasons for strength then look at the potential for GBPJPY and EURJPY shorts if the BoJ starts acting to strengthen the JPY.