The dollar-yen pair remains near critical levels as traders weigh policy divergences between the Fed and BOJ amid rising intervention risks and record Japanese budget approval.
Key Market Statistics:
- Current price: 157.55
- Highest in 2024: 158.08 (December)
- Weekly variation: +0.8%
- Performance since the start of the year: +10%
- Key level: 160 (intervention risk zone)
- Range after OBJ meeting: 153.34-158.08
Dynamics of BOJ policy
Recent notices from the BOJ meeting reveal mixed views on the timing of the rate hike, with some members saying conditions are ripe for a near-term move, while others advocate patience given the uncertainties surrounding the policies of future President Trump. New central bank profit estimates show potential losses of up to $13 billion under a 2% rate scenario, highlighting the challenges of policy normalization.
Political and fiscal landscape
The approval of Japan’s record 115.5 trillion yen budget for fiscal 2025 poses a key test for Prime Minister Ishiba’s minority government. The 2.6% increase in spending, combined with a reduction in bond issuance, reflects fiscal consolidation efforts. However, political uncertainty related to the adoption of the budget could influence the BOJ’s decision on interest rates in January.
Source: Bloomberg
Risk of intervention
Finance Minister Kato’s new warnings against excessive currency movements have heightened speculation of intervention as the USD/JPY parity approaches 160. The recent surge to five-month highs has prompted increased official rhetoric, although the actual intervention thresholds remain uncertain.
Outlook for 2025
While the markets currently assess the probability of an increase in the Bank of Japan’s key rate at 42% in January and at 72% in March, this trajectory remains highly dependent on the evolution of wages and the clarity of American politics. The interplay between monetary normalization, political stability and currency market dynamics portends continued volatility, with 160 as the key psychological risk and intervention level.
USDJPY (Intervals D1)
The USDJPY pair is approaching the highs of 157-158 reached in late April, a level that has already led to intervention in the foreign exchange market. Following this intervention, USDJPY pulled back to the 50-day EMA, suggesting that for bears the target could be around 153.167.
Bulls, on the other hand, could aim for a retest of all-time highs in the 160-161 zone. The RSI is consolidating near the overbought zone, which has always been a sign of further upside before a potential correction. Furthermore, the MACD continues to advance but is narrowing, indicating that momentum may be fading. Source: xStation
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