The yen is holding near its strongest level since February as USD/JPY trades around 153.65, with traders pricing a Bank of Japan rate hike this month and Tokyo having spent roughly $96.4 billion over the past month to support the currency. Oil approaching $100 a barrel on widening Middle East fighting is adding pressure on the dollar at the same time.
Yen holds near seven-month high
The USD/JPY pair traded around 153.65 on Wednesday, after the yen strengthened to 152.89 a day earlier, its strongest level since February. The yen has gained about 4% in September.
This move reflects expectations for faster Bank of Japan tightening, the prospect of Japanese investors repatriating overseas funds, and pressure from Washington for a stronger yen. Traders widely expect the BOJ to deliver a rate hike of 25 basis points at its September 17-18 meeting, while the pace of future increases will depend on whether Governor Kazuo Ueda follows with hawkish guidance.
Intervention and outflows shape the move
Japan's currency policy remains under close scrutiny after its record intervention. Tokyo spent the equivalent of 15.4 trillion yen, or about $96.4 billion, over the past month supporting the yen, with part of the operation conducted jointly with the U.S. Japan's foreign securities holdings fell a record $87.8 billion in August, close to the scale of the intervention, as officials used foreign assets to help finance the operation. The move has also raised concerns in Washington about the impact of Treasury sales on long-term U.S. yields.
Dollar slips as oil nears $100
Meanwhile, the U.S. dollar index traded around 98.15, close to its lowest level in almost two weeks. Brent crude futures rose 1.5% to $99.37 a barrel as the conflict in the Middle East widened, with Iranian-backed Houthis striking several Saudi cities and U.S. forces hitting multiple Iranian oil tankers. Higher oil prices could keep inflation elevated and complicate rate decisions globally.
Traders are now awaiting Friday's U.S. inflation report, the last major data release before the Sept. 15-16 FOMC meeting. On the technical side, intraday bias in USD/JPY remains mildly on the downside, with the break of 155.01 cluster support already suggesting a medium-term top, and a firmer break below that level targeting the 149.07 fibonacci retracement next.
Sources: Investing.com, ActionForex
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