The Bank of Japan is concerned about the continued weakness of the Yen as it increases costs for Japan’s domestic market. This concern ultimately led to an intervention in the Yen around the end of September which sent the USDJPY sharply lower at the time. However, history is against currency intervention alone being successful in moving the USDJPY lower. The most famous recent example was when the SNB wanted to keep the EUR/CHF pair pegged at 1.2000. It failed, despite enormous efforts, in January 2015.

So, the Bank of Japan will be wary about trying to send the USDJPY lower as long as US interest rates are expected to keep rising and Japan is maintaining its ultra-low monetary policy.

The seasonals are also against USDJPY falls. From a seasonal perspective, between October 16 and December 08, the USDJPY pair has risen 10 times and only fallen 5 times. The average return has been +2.57%.

So, does this mean that the USDJPY will continue to track higher despite any actions from the BoJ? It seems that both history and seasonals are lining up against the chances of success for the BoJ, so any impact of intervention could be very short-lived.

Major Trade Risks: The major trade risk here is that the US ‘pivot’ and the BoJ change policy stance and that would most likely send the USDJPY lower.

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