USD/JPY forecast as Japanese yen hits critical BoJ intervention level

The Japanese yen crashed to an important level that triggered a massive Bank of Japan (BoJ) intervention in April. The USD/JPY exchange rate rose to the crucial resistance at 160, its highest point since April 30th this year, and 3.40% from its lowest point in May.

Japanese yen slumps despite strong GDP data

The USD to JPY exchange rate slumped sharply, even after Japan’s statistics agency published strong macro numbers. 

This report revealed that Japan’s economy expanded by 1.8% in the first quarter, higher than the 0.7% growth experienced in Q4 of last year. It was also higher than the consensus estimate of 1.3%.

The economic growth was driven by external demand and consumer spending, which jumped by 0.3% during the quarter. This growth was offset by the modest 0.7% decline in capital expenditure.

Still, the USD/JPY pair rose after this report because the economy is expected to remain under pressure in Q2 because of the war. As such, it is still unclear whether the Bank of Japan will hike interest rates this year.

The pair jumped because investors embraced a risk-on sentiment amid fresh issues in the Middle East. Israel launched several attacks against Iran, putting the already-fragile ceasefire at risk. There were also attacks between Israel and Hezbollah in Lebanon. 

At the same time, in a show of bad faith, the US is considering steering frozen Iranian assets towards the reconstruction of its Gulf allies. Such a move would ensure a prolonged conflict between the US and Iran, a move that would raise crude oil prices.

Japan has been one of the most affected in the ongoing crisis as the country imports most of its crude oil from the Middle East. It has now been forced to look elsewhere, including in the United States for oil.

Will the Bank of Japan intervene?

The ongoing Japanese yen crash has led to a sense of urgency among the Bank of Japan officials. For quite some time, officials have viewed 160 as a crucial level for the currency. For example, the Japanese yen surged hard in late April after the bank intervened by pumping over $35 billion to the economy. The bank may decide to hike interest rates to make the yen more attractive.

The USD/JPY pair is also soaring because of the ongoing strong US dollar after the recent macro data. Several reports released last week confirmed that the US economy was doing well, with the number of job openings soaring. The economy added over 172k jobs last month. 

A report that will be released later this week is expected to show that the headline and core CPI jumped in May as energy prices jumped. As a result, there are signs that the Fed will need to hike interest rates at least once this year. Such a move will likely lead to a feud between Trump and Kevin Warsh, the Fed Chair he appointed this year.

USD/JPY technical analysis

USDJPY chart | Source: TradingView

The daily chart shows that the USD to JPY exchange rate has soared in the past few weeks. It has managed to pare back all the losses it experienced after the recent BoJ intervention. 

The pair has now moved to the crucial resistance level at 160, raising concerns on what the BoJ will do. Technically, there are signs that it has hit a barrier. A move above that level will point to more gains, potentially to 162. However, be on the lookout for any BoJ action.