The Japanese Yen sits still while Tokyo calls it undervalued

The Japanese Yen maintained its stability while Tokyo insisted it was undervalued. Finance Minister Katayama acknowledged that an undervalued Yen is generally an issue and expressed hopes for further cooperation with the US Treasury Secretary Bessent. Japan is planning to maintain ongoing currency market stability through close communication with the US Treasury.

The USD/JPY rate closed just above 157.00, within Monday's trading range. Japan's Yen-buying campaign commenced on July 30, with the currency reaching its weakest point in nearly four decades. The Ministry of Finance (MoF) incurred a record spend of ¥15.4 trillion on Yen purchases. The USD/JPY rate stands approximately six Yen below the level at which the purchasing began, and Finance Minister Katayama now perceives the Yen as undervalued.

Moreover, Finance Minister Katayama noted that Prime Minister Takaichi's government is not reflationary. According to Vice Finance Minister for International Affairs Mimura, markets should heed the Tokyo and Washington messages, and MUFG analysts view these comments as encouraging expectations for the Bank of Japan (BoJ) to raise rates faster due to US pressure.

The BoJ did raise its policy rate to 1.25%, its highest in 31 years, on September 18, while the Fed's range remains between 3.75%-4.00%. The BoJ intervention serves as a temporary measure; only a narrower rate gap could make Yen less attractive for borrowing and purchasing higher-yielding US assets, which maintains the strength of USD/JPY.

The MoF will release its intervention figures for August 27 to September 28 on Wednesday, revealing whether the September 18 rate check resulted in actual Yen buying. Japan's quarterly Tankan survey will be published at the same time on Wednesday, with the large manufacturers index forecasted to rise from 22 to 25. The BoJ's summary of opinions from its September meeting will be out at the same minute.

A substantial MoF figure would indicate that the September warnings were backed by money, making the next surge towards the year's highs costlier for Dollar buyers. Conversely, a smaller figure would suggest that Tokyo has merely been talking and not purchasing since late August. On Wednesday, the Japanese Yen's consumer prices will be released at 23:30 GMT, with inflation excluding fresh food expected to be at 2.4% YoY, compared to 1.8% in the previous period, alongside a forecasted jobless rate of 2.4%.

On the other side of the Pacific, the Fed's preferred inflation measure will be released on Wednesday, as will the payrolls on Friday, both of which will influence the US Federal Reserve's decision on October 28, which occurs two days before the BoJ's meeting. Tuesday's high stopped at the 200-day Exponential Moving Average (EMA), just under 158.00, and Monday's high also failed to surpass 158.00.

Moving above it, Thursday's high near 159.00 is where Friday's decline commenced. Support is found at 157.00, which held Friday's and Tuesday's lows. Below it, the Monday dip ended around 156.50, and the September 18 low, just under 156.00, represents the next floor. The prevailing bias is to short below 158.00, targeting 156.50 initially, and then 156.00.

Momentum has not yet reversed: the daily Stochastic Relative Strength Index (Stoch RSI) has climbed to 73 and continues to rise, suggesting a potential move toward 158.00 before the downward trend resumes. A daily close above 158.50 would signal the end of the current trend.