Is USD/JPY’s breakout towards 160 fuelling intervention concerns?

USD/JPY remains steady near the 160 intervention zone after the previous session's breakout from its recent trading range took the pair to a 10-week high of 159.80.

Stronger-than-expected US inflation figures and hawkish signals from the Fed have lifted the US dollar against its major peers. Headline US CPI increased by 0.4%, against expectations of 0.3%, while core CPI advanced 0.3%, exceeding the 0.2% forecast.

A 50-basis-point rate hike in December emerged as a possibility following comments from Federal Reserve Governor Christopher Waller. Markets consequently fully price in a 25-basis-point increase next month, along with a 10% chance of a 50-basis-point hike.

After surging to 5% on Tuesday, US Treasury yields remain high at 4.99% today. The Treasury market was shut yesterday for Veterans Day.

The US dollar continues to draw support from elevated yields and expectations of additional Fed rate increases. By contrast, the yen remains directionless as the BoJ shows little hawkish conviction.

Even an improvement in risk sentiment has not weakened the US dollar's firm footing. US equities recovered, with the Nasdaq ending the session 1.6% higher.

Several Fed speakers, including Hammack and Daly, will be in focus today as markets seek fresh indications of the pace of monetary tightening. Expectations are for US jobless claims to stay low at 195K; US PPI figures follow tomorrow.

Can the yen withstand a widening BoJ-Fed policy divergence?

A firmer dollar has weighed on the Japanese yen. Following the central bank's decision to leave rates unchanged at its October meeting, BoJ Governor Kazuo Ueda has continued to leave scope for further increases. More aggressive tightening by the Fed, however, could widen US-Japanese interest rate differentials once again and put the yen under additional pressure.

Even with further rate increases under consideration at the BoJ, changes in Fed expectations continue to dictate the yen's fortunes.

With USD/JPY approaching 160, Japan's chief currency official, Atsushi Mimura, has voiced concern about the speed of currency movements in recent days. He also cautioned that it is too early to dismiss the prospect of intervention of the kind seen over the summer.

Should the pair move above 160, Japanese officials could intensify their warnings as their tolerance is tested. The level may serve as a line in the sand.

USD/JPY technical analysis: can the breakout extend above resistance?

USD/JPY has moved above 159 and stands at 159.75 at the time of writing, ending a consolidation phase that began in late September between resistance at 159 and support at 157.25. The pair is currently testing the 61.8% Fibonacci retracement of the decline from the 164 high to the 152.90 low.

With momentum in their favour, buyers will seek a move through this resistance towards 160. Last tested in late August, that level is also a potential intervention point for Japanese authorities. Beyond it, the next focus is the 78.6% Fibonacci retracement at 161.60, followed by 163.99, the 2026 high.

If the 61.8% Fibonacci retracement at 159.75 holds as resistance, USD/JPY could retreat towards 159 and then 158.44, the 50% Fibonacci retracement. Below that, focus would shift to the consolidation range's lower boundary at 157.20. A fall through this level would confirm a downside breakout and put 155.50 in view. This marks the 23.6% Fibonacci level and provided support in July and May.