The USD/JPY rally is ongoing, fueled by expectations of snap elections and political risks in Japan. Tensions between Japan and China are also boosting momentum. Although concerns about possible interventions may slow the pair near 160, analysts believe it will ultimately test this level, reminiscent of a similar situation in July 2024. In July 2024, the USD/JPY rose above 160 before officials considered intervention as it approached 162. On July 11, 2024, the pair moved 1.8% in response to intervention. At that time, CFTC net non-commercial yen positions were -52% of open interest, while now they stand at 3% net-long, despite differing spot actions.

Past Interventions Show Temporary Effects

Previous interventions only had short-term effects, without leading to lasting recoveries. In 2024, the market saw a long-term decline after U.S. 2-year swap rates fell by 50 basis points. Currently, another such scenario seems unlikely. With the threat of snap elections, markets are cautious about expecting any Bank of Japan (BoJ) rate hike before summer. The FXStreet Insights Team includes journalists who provide market observations. Their insights come from both commercial and internal/external analysts. The article emphasizes the high stakes and quick shifts in financial markets, encouraging careful research before making financial decisions. As January 2024 progresses, the USD/JPY rally shows no signs of slowing down. Discussions about snap elections in Japan are intensifying, creating political uncertainty that weakens the yen. Recent polls indicate the Prime Minister’s approval rating has dropped to a new low of 21%, reinforcing market beliefs that change is imminent.

Market Anticipations and Trading Strategies

We expect the market to push towards the 160.00 level, and possibly beyond, in the upcoming weeks. Looking back at the summer of 2024, Japanese officials allowed the pair to exceed 160 before intervening near 162. With the pair currently around 158.50, traders should be prepared for a similar scenario this time. Buying call options on USD/JPY appears to be a smart move to capitalize on this momentum with controlled risk. One-month implied volatility has already reached 11.2%, indicating growing anticipation of a significant move past the 160 level. This setup also makes long volatility strategies, like straddles, attractive for those expecting large price swings, regardless of direction. We advise caution when betting on reversals solely due to Bank of Japan interventions. As seen in 2024, a major drop required a significant decline in U.S. yields, which does not seem likely now. The CME FedWatch tool indicates almost no chance of a U.S. rate cut before summer, meaning any intervention-induced dip in USD/JPY would likely be a buying opportunity rather than a new trend. Create your live VT Markets account and start trading now.

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