The forex market, including the USD/JPY pair, is showing a widespread move towards yen depreciation. This comes as no surprise, given the recent Bank of Japan (BoJ) decision to enhance Yield Curve Control (YCC), Governor Ueda’s press conference, and the fact that there has been zero intervention in the forex market between September 27 and October 27, creating a sense of comfort with yen-selling.
In response, Finance Minister Kanda has expressed that they are “standing by,” conveying to the market that they are ready to intervene at any time.
On October 21 of last year, after USD/JPY reached its recent high around 151.95, it was pushed down to the mid-146 yen range through extensive intervention by the government and the BoJ. The current 151 yen range is approaching the high levels seen during that time, and market caution appears to be quite high. If there is a struggle around the 152 yen level, there is also the possibility of significant fluctuations in the USD/JPY exchange rate, so caution is warranted.
In the foreign markets to come, the US ADP Employment Report for October will be released. Although there is concern about its correlation with Friday’s US employment data on non-farm payrolls, given the heightened volatility in the USD/JPY, the market’s reaction to the results could be significant. The market consensus is for an increase of 150,000 jobs, which is a significant improvement from the previous increase of 89,000 jobs.
Another factor of interest is the JOLTS job openings data, which has had a substantial market impact recently. The expectation for this release is a decrease from 9.61 million to 9.40 million job openings. This could draw attention as a short-term driver of USD/JPY movements.
Additionally, the US Treasury will announce details of its Quarterly Refunding operation. An increase in supply is expected to lead to bond selling and rising yields, while a decrease is expected to result in bond buying and lower yields. Market expectations are leaning towards a substantial increase in issuance, driven by the expansion of the US fiscal deficit.
Lastly, the results of the US Federal Reserve (Fed) FOMC meeting will be released at 3:00 AM Japan time on the 2nd, followed by Chairman Powell’s press conference at 3:30 AM. It is widely expected that the Fed will maintain its policy rate, almost in line with the market consensus, making for a relatively uneventful outcome.
It’s worth noting that while there have been several instances resembling intervention by the Bank of Japan, it has been clarified that this wasn’t an intervention. Thus far, there hasn’t been any intervention even in the 151 yen range. Considering the movements of last year, it’s likely that intervention would be more pronounced around the 152 yen level, and it’s a level that will make market participants quite nervous.