Japanese yen depreciates following dismal response from Kandy

The Japanese yen is trading above 160.50 against the US dollar.
Traders are testing the Japanese government, which may not take action until Friday.
The US dollar index is rising after several hawkish comments from the Fed.

The Japanese yen (JPY) continues to retreat and is facing a more than 5% devaluation against the US dollar since the Japanese government last intervened in May. The reason for the strengthening of the US dollar is the unrelenting hawkish comments of Michelle Bowman, an official of the US Federal Reserve, who stated that the current conditions are not suitable for starting interest rate cuts and that she is even considering another rate augment before starting the cuts. This strengthens the US dollar, making it sturdy enough to break above 160.00 against the yen and testing the Japanese government’s line against interventions.

Breaking: Japanese yen falls to multi-decade low against US dollar, with attention on BoJ

Meanwhile, the DXY US dollar index – which measures the value of the US dollar (USD) against a basket of six foreign currencies – is stronger thanks to the depreciation of the Japanese yen. The other heavyweight in the basket, the euro, is also not helping as uncertainty grows ahead of early French elections on Sunday and German consumer confidence deteriorates further. This gives DXY a boost with outside facilitate, even though the dollar appears overvalued given the latest economic data.

Daily digest of market movers: watch out for every reaction

At 13:15 GMT, Deputy Finance Minister for International Affairs at the Japanese Ministry of Finance, Masato Kanda, said the government was closely monitoring currency markets and that appropriate steps would be taken if necessary.
Gareth Berry, currency and rates strategist at Macquarie, expects the USD/JPY pair to fall to 120.00. This decline is expected to occur over the next 18 months, Bloomberg reports.
Mitsubishi UFJ Trust and Banking Corporation’s head of sales and trading, Takafumi Onodera, noted that Japanese authorities will not intervene until Friday’s release of U.S. personal consumption expenditure (PCE). A stronger-than-expected report could spark volatility and push the yen toward 163.00 against the U.S. dollar, prompting officials to conduct a “rate review” or intervene during a period of low liquidity. Rate checks are warning traders that authorities may be preparing to step in to support the yen.
At 11:00 GMT, the Maritime Bankers Association (MBA) released its weekly mortgage application numbers for the week ending June 21. Mortgage applications increased by 0.9% last week and were 0.8% this week.
At 2:00 p.m., modern home sales data for May will be released. Analysts expect sales to rise slightly to 640,000 from April’s 634,000.
The US Treasury will issue 5-year bonds to markets at 17:00 GMT.
The Federal Reserve Bank’s stress test report will be released at 20:30 GMT.
Stocks are giving up on an early recovery, with indexes in both Europe and the US falling as dollar strength disfavors investors.
The CME Fedwatch Tool broadly supports an interest rate cut in September, despite recent comments from Fed officials. Currently, the odds of a 25 basis point cut are 57.9%. The probability of a rate pause is 35.9%, while the probability of a rate cut by 50 basis points is 6.2%.
The one-day indexed swap curve for Japan shows a 56.6% chance of an interest rate augment on July 31 and a lower 49.6% chance of an augment on September 20.
The US 10-year benchmark rate remains near its weekly high at 4.27%.
The benchmark 10-year Japanese Treasury Note (JGB) is trading around 1.023%, above 1% for the first time since June.

USD/JPY Technical Analysis: Oil on Fire

The USD/JPY pair is flashing red as the price action is overheating. The best evidence is the Relative Strength Index (RSI), which is close to overbought conditions on the daily chart. The magical level of 160.00, at which the Japanese authorities last intervened, has already been exceeded. An immediate reaction is not expected as authorities will want to see whether US data on Thursday and Friday can trigger some easing of monetary policy without sticking their necks out and intervening. On the other hand, the 163.00 level may be tested on stronger US data in the coming days, while on the other hand, the 151.95 level is again a key support to watch.

(This story was corrected on June 26 at 12:19 GMT to show that the Japanese yen was at a multi-decade low against the dollar, not its highest.)