FX.co ★ USD/JPY goes on roller-coaster ride

The USD/JPY pair went into a turbulence zone. The pair has been fluctuating wildly for a second consecutive session. For how long will this roller coaster continue and where will it bring the pair?

USD pressured by FX interventions

Last week, USD/JPY surged amid a growing gap between the rate policies of the US and Japan. This resulted in a spectacular rally of the pair.

In just a few days, the greenback strengthened against the yen by more than 1% and broke through the psychological level of 150. It continued to advance supported by the hawkish plans of the Fed.

In the early session on Friday, USD considerably accelerated growth and jumped to a fresh 32-year high of 152.

This was the last straw for the Japanese government that has repeatedly warned it would have to intervene again if the yen continued to fall.

Yet, given the failure of the previous intervention, the dollar bulls downplayed these warnings and had to regret this later.

At the end of the previous week, JPY unexpectedly surged by 4% in just a few hours and reached the mark of 144.50.

This jump had no fundamental ground which is why traders suspected another intervention by the Bank of Japan.

Although Japanese monetary authorities declined to comment, most analysts are sure that these were the measures that helped the yen recover.

According to estimates, the BoJ spent around $30 billion on currency interventions which is $10 billion more compared to the previous round.

Moreover, some analysts are sure that the regulator made another intervention this morning when the US dollar headed for the key level of 150 against the yen.

A rapid fall in the US dollar may serve as proof of this assumption. The greenback dropped sharply without any obvious reason.

"It's blindingly obvious that the BOJ is intervening," Ray Attrill, head of FX strategy at National Australia Bank in Sydney, said.

Storm alert for USD/JPY

However, interventions are becoming less effective with time. At the moment of writing, USD managed to recover back to 149 and settled there.

The US currency is regaining ground at a fast pace, driven by the growing gap between monetary policies of the Fed and the BoJ.

More than a week is left until the next Fed meeting where the regulator is expected to raise rates once again.

As this event is approaching, hawkish expectations will rise, thus boosting the growth of the US dollar.

In addition, traders are waiting for the report from the BoJ. The regulator is widely expected to maintain its current monetary policy and leave the rate unchanged.

If so, the greenback may get another strong driver while the yen will depreciate further. But will Japan's monetary authorities put up with this?

Most likely, they will continue to intervene. Japan's top currency diplomat Masato Kanda said this morning that authorities were ready to take tough measures to tackle speculations against the yen.

Analysts assume that Japan may introduce more interventions in the coming days. This means that USD/JPY will be extremely volatile this week. So, traders should be very cautious when dealing with this instrument.

At the same time, experts note that interventions may have limited effect on the yen. As long as the Fed is aggressively hiking the rate, the BoJ is unlikely to halt the rally of the US dollar.

Only a change in the BoJ's policy may stop the downtrend in the yen. Yet, there are no signs of such a change which means that USD will keep strengthening against the yen despite all attempts by the BoJ.