Higher USD/JPY continues to drum up expectations of intervention though some may be watching if authorities are allowing for further depreciation before stepping in. Spread between implied and realised vol continues to widen. And we observed from history that actual market intervention risks do rise if spread continues to widen, OCBC strategists Frances Cheung and Christopher Wong note.

Bullish momentum on daily chart

“In the interim, USD/JPY will look to UST yields, US Dollar (USD) for directional cues. For USD/JPY to turn lower, that would require the USD to turn/Fed to cut or for BoJ to signal an intent to normalise urgently (rate hike or increase pace of balance sheet reduction). None of the above appears to be taking place.”

“As such, the path of least resistance for USD/JPY may still be to the upside unless intervention takes place. And we shared that intervention is at best a tool to slow pace of JPY depreciation and not to reverse the trend.”

“USD/JPY was last at 161.44. Bullish momentum on daily chart intact while RSI is still in overbought conditions. Next resistance at 164, 164.90 levels. Support at 160.20, 158.10 (21 DMA), 156.90 (50 DMA).”