USD/JPY rose early in the trading session because demand for safe haven assets decreased after news of a possible end to the US government shutdown. Analysts from OCBC noted that the pair was at 154.17. FX analysts pointed out that fiscal concerns and intervention risks are driving USD/JPY changes. Japanese Ministry of Finance officials tend to speak up when the pair goes above 154, and Finance Minister Katayama’s earlier remarks helped slow USD/JPY’s rise.

Technical Analysis Overview

Even though there are signs of mild bearish momentum, the price pattern shows lower lows and flat highs, forming a descending triangle. This pattern suggests that bearish pressure might be coming. Support levels are found at 152.50 and 151.60, while resistance is at 154.40, based on Fibonacci retracement levels. The FXStreet Insights Team shares market observations from experts, providing comments from both commercial and independent viewpoints. This approach highlights additional insights based on current market trends and developments. With USD/JPY around 154.17, the market is influenced by two main factors. The immediate rise came from relief over the potential end of the US government shutdown, which reduced demand for the safe-haven yen. This creates a challenging situation where fundamental factors conflict with technical signals and government warnings. The risk of intervention from the Ministry of Finance is very high now that prices exceed 154. Officials are speaking out more, reminding us of significant interventions in late 2022 when the pair last stayed at these levels for an extended period. Japan’s foreign exchange reserves remain solid at over $1.1 trillion, giving them enough resources to defend the yen if needed.

Interest Rate Differential Impact

However, the main reason for the yen’s weakness still exists and cannot be overlooked by traders. The interest rate differential is large, with the US Federal Reserve’s funds rate above 5% and the Bank of Japan’s policy rate near zero. This fundamental pressure makes holding a short USD/JPY position costly and continues to attract buyers during significant dips. Technical signals are warning of potential downward pressure on the pair. The descending triangle formation, with a series of lower lows against a flat top, commonly indicates an increased likelihood of a bearish breakdown. This brings the initial support level at the 21-day moving average around 152.50 into focus for upcoming sessions. For derivative traders, this environment of high tension suggests that dealing with volatility might be a smart strategy. The 1-month implied volatility for USD/JPY has increased to over 10%, reflecting market uncertainty between steady increases and sharp drops due to intervention. Options strategies that could benefit from major price movements in either direction, like long straddles, should be considered to manage these conflicting signals. Create your live VT Markets account and start trading now.

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