Japanese Authorities Vigilant of Japanese Yen Volatility

The Bank of Japan (BoJ) plans to maintain its ultra-loose monetary policy as Governor Ueda reaffirms the need for accommodative measures until sustainable inflation of 2% is achieved. Expectations are that price pressures will decrease significantly by the middle of next year. This stance aligns with the central bank’s commitment to continue large-scale monetary easing and yield curve control until inflation targets are met.

In response to the recent weakening of the Japanese Yen, authorities are closely monitoring the currency market’s stability. Masato Kanda, a senior official at the Ministry of Finance, emphasizes the importance of currency rates reflecting fundamentals and highlights the undesirable nature of excessive volatility.

President Joe Biden and House Speaker Kevin McCarthy have reached a preliminary debt ceiling deal, pending Congressional approval. While the deal is expected to pass, some initial resistance is anticipated before it is voted into law. Following this announcement, US Treasury bond and bill yields have declined, particularly in the short-term. This decrease in yields undermines the strength of the US dollar.

As a result of the US dollar’s weakness, USD/JPY has dropped below the 140.00 level. Key support levels to monitor include 139.36 and 137.92, while revisiting the recent double-top near 142.00 may prove challenging given the current macroeconomic environment.

Retail sentiment for USD/JPY remains mixed, with a ratio of traders short to long at 2.43 to 1. While there has been a slight increase in net-long positions compared to the previous day, the number of net-long traders is lower than the previous week. Conversely, net-short traders have decreased slightly compared to the previous day but increased compared to the previous week. This mixed sentiment adds further complexity to the trading bias for USD/JPY.

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