The USDJPY pair remains under pressure, trading within a four-day range near its highest levels since November 2022. The market is cautious due to mixed sentiment and the US Independence Day holiday. Investors are concerned about a possible intervention by Japan to defend its domestic currency, as the Yen hovers at eight-month highs. Additionally, fears of a recession are being signaled by the inversion of US Treasury bond yields.
Japanese policymakers have expressed their readiness to intervene in the money markets to protect the Yen. Japanese Finance Minister Shunichi Suzuki stated that he is maintaining close contact with the US at the vice-ministerial level regarding foreign exchange. Masato Kanda, the nation's top currency diplomat, mentioned that he is engaged in communication with various countries, including the US, regarding currencies.
The inversion between the US 10-year and two-year Treasury bond yields has reached its highest level since 1981, reigniting concerns about a potential recession. Investors are increasingly expecting the Federal Reserve to raise benchmark borrowing rates to control inflation. The two-year Treasury bond yields dropped to 4.85%, while the 10-year counterpart fell to 3.78%. Although these yields recovered slightly by the end of Monday's trading, the inversion remains a significant worry.
Negative US economic data has put pressure on the US Dollar, but overall sentiment amid the holiday season is providing some support. The US ISM Manufacturing PMI for June reached its lowest level in three years, remaining below the 50.0 level for the seventh consecutive month. S&P Global Manufacturing PMI for June also indicated a decline, while Construction Spending improved. Wall Street managed to post minor gains, but S&P500 Futures are retreating.
The US holiday is expected to limit immediate movements in USD/JPY. However, concerns about market intervention may dampen bullish sentiment, despite expectations of a 0.25% rate hike by the Federal Reserve in July. In terms of technical analysis, the USD/JPY bulls are losing momentum, as indicated by the formation of lower highs, overbought RSI, and a break of a rising support line. Immediate resistance is seen around 144.70.
The news of Japan's potential market intervention to defend the Yen and the inversion of US Treasury bond yields can have significant implications for the Forex market, particularly the USD/JPY pair. Forex traders should closely monitor these developments as they can influence the value of the Yen and the US Dollar. The threat of intervention by Japan may deter buyers of USD/JPY, while concerns about a recession could impact risk sentiment and affect currency movements. Additionally, the downbeat US economic data may contribute to fluctuations in the Forex market. Traders should stay informed about these factors and consider them when making trading decisions in the USD/JPY and other related currency pairs.