The US Dollar is getting a boost from good economic news, with the GDP growth rate for the third quarter at 4.3%, up from an earlier estimate of 3.3%. However, the USD/JPY is down to about 156.40, which is a 0.40% drop for the day, mainly due to a stronger Japanese Yen. In December, consumer confidence in the US fell to 89.1 from 92.9. This shows that people are feeling less optimistic due to inflation and high interest rates. At the same time, the job market remains tight with slow job growth reported by the ADP Employment Change. Additionally, Industrial Production has slightly decreased by 0.1%.

Japanese Yen Rally Driven By Intervention Expectations

The Japanese Yen is rising mainly because of expectations that Japanese officials might intervene to prevent its rapid decline. Japan’s Finance Minister has hinted at the possibility of taking action against unpredictable currency changes, which is strengthening the Yen even though the Bank of Japan is being careful with monetary policy. The USD is showing mixed results against major currencies, decreasing by 0.16% against the Euro and 0.17% against the Pound. The Yen is getting stronger against multiple currencies due to market expectations of possible intervention and the Bank of Japan’s cautious stance on rates. The current situation in USD/JPY highlights a conflict between the strong US economy and the potential for Japanese intervention. With the pair hovering around 156.40, the market appears to be more concerned about intervention than the significant interest rate difference. This is a delicate balance, particularly as we approach the low-liquidity holiday season.

US Economic Data And Intervention Risks

Recently, the final November Personal Consumption Expenditures (PCE) data in the US was released at 3.2%, slightly above expectations. This supports the Federal Reserve’s plan to keep rates high until 2026, which provides a solid ground for the dollar. It makes it hard for USD/JPY to drop significantly without Japan taking action. The strong GDP growth of 4.3% further emphasizes the economic difference between the US and Japan. On the flip side, the Tokyo Core CPI for December showed inflation at 2.8%, putting pressure on the Bank of Japan. However, the market believes that the immediate concern is intervention from the Ministry of Finance rather than a sudden change in BoJ policy. Officials are clearly unhappy with the Yen’s weakness, as shown by their comments. Recent data from the CFTC shows that speculative short positions on the Yen are historically high. This makes the currency pair vulnerable to a short squeeze if Japan intervenes, which could lead to a sharp drop of several hundred pips. Thus, purchasing short-dated USD/JPY put options could be a smart move to protect against a sudden downturn in the coming weeks. We recall the interventions from late 2022, where warnings were issued before the Ministry of Finance took action to lower the pair from 150-152. The current situation seems similar, so we are alert for any “rate checks” from the BoJ, which might signal an impending decision. Historical trends suggest that while the case for a strong dollar is evident, overlooking the risk of intervention is not advisable. Create your live VT Markets account and start trading now.

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