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On Tuesday, as the USDJPY pair breached the critical psychological level of 150.00, speculation about interventions emerged, but Japanese authorities remained tight-lipped. However, with the undeniable widening of the US-Japan bond yield spread, Japanese authorities cannot ignore the situation. We believe that "déjà vu" intervention measures may have already commenced.

Fundamentals

The yield on Japan's benchmark 10-year government bonds has risen to 0.8%, the highest level since 2013. The overnight index swap (OIS) for the corresponding tenor touched 1% for the first time since January, indicating investor bets on yields possibly rising to the effective policy ceiling of the Bank of Japan. Speculation is growing that the Bank of Japan may end its negative interest rate policy sooner, while other major central banks are expected to maintain high rates for a longer period.

The increase in Japanese bond yields is primarily driven by rising US bond yields and speculation about potential changes to Japan's negative interest rate policy and early rate hikes. The OIS will also depend on these factors.

Following the breach of the 150.00 psychological level on Tuesday, the USDJPY pair remained below this critical level, sparking speculation that authorities may intervene to support the yen.

However, an analysis of the BoJ's accounts suggests that Japanese authorities may not have intervened to support the yen on Tuesday. Unlike the large-scale yen buying operation in September of last year, there was a significant discrepancy between BoJ's current account data and private-sector estimates of government fund flows. The initial estimate of Japan's current account balance released by the BoJ for this week aligned with expectations, indicating that there was no intervention in the market following the breach of the 150.00 psychological level. If Japanese authorities had intervened on Tuesday, government fund flows would likely have shown a substantial negative value. However, the situation on Tuesday did not mirror the impact of similar interventions by the Ministry of Finance last year, which totaled over $60 billion. Nevertheless, given the undeniable widening of the US-Japan bond yield spread, Japanese authorities cannot afford to ignore the situation. We believe that familiar intervention measures may have already commenced.

On Thursday, with the US dollar generally weaker, the USDJPY pair touched an intraday low of 148.26, triggering stop-loss selling in USDJPY long positions. This level covers the price range of options expiring on Thursday at 148.40-50. Since the turbulent trading day on Tuesday, the 148.70 level has become the hourly technical support. Leveraged clients are still seeking clues from the intraday movements of US treasuries.

Technical Analysis

After a brief breach of the psychological level of 150.00 in the USDJPY pair, Japanese authorities took significant steps to intervene in the market. Subsequently, the asset swiftly declined, plummeting to 147.25 in just five minutes.

However, the asset quickly rebounded above 148.00, suggesting that speculative selling associated with the Japanese authorities' "intervention" may not be as imminent as initially thought, and the resilience of yen bears remains. Therefore, it might be too early to predict a trend reversal. Nonetheless, the similarities in the technical charts indicate that intervention may have already begun.

Daily research still maintains a bullish outlook and supports the expectation of retesting the 150.00 level, with a breakthrough potentially exposing the 2022 peak of 151.94 in the chart.

The risk of further action by Japanese authorities could make the downside vulnerable, with a preliminary downside signal expected if the key reversal level of 148.70 is breached, confirming a downward trend. In terms of trading strategy, it is recommended to go short at highs.

Trading Recommendations

Trading Direction: Short

Entry Price: 149.00

Target Price: 144.54

Stop Loss: 150.25

Valid Until: 2023-10-19 23:55:00

Support: 148.72, 148.29, 147.32, 146.10

Resistance: 149.31, 149.70, 150.00, 151.04