USD/JPY drops below 149.00 on a volatile day

• US S&P Global October preliminary numbers below expectations.
• Japanese yen remains calms during American session following BoJ intervention.
• USD/JPY steadies around 148.80 after sharp moves.

The USD/JPY is hovering around 148.80, up more than a hundred pips for the day on another session of extreme volatility. Earlier it bottomed at 145.36, the lowest since October 10 and then rebound, being unable to regain the 149.50 area.

Japanese authorities seem to be behind the sharp moves seen in the USD/JPY earlier on Monday. More recently, the US dollar lost momentum particularly during the American session following the release of US economic data. The preliminary S&P Global Manufacturing PMI decline to 49.9 from 52 in September, the lowest level in 28 months.

Volatility is set to remain at extreme levels with the upside in USD/JPY still being supported by the divergence between the ultra-accommodative Bank of Japan and the aggressive tightening of the Federal Reserve.  The Bank of Japan Monetary Policy Committee will meet this week (decision on Friday) and the Federal Reserve will have the FOMC meeting next week (decision on Wednesday).

“Despite the lack of urgency to tighten policy from a real wages and output gap perspective, the rapid weakening of the JPY and broadening inflation pressures in Japan cannot be ignored. We don't expect the BOJ to act at the October meeting, but there is a risk of more aggressive signaling. There is a stronger case for a shift in YCC once Governor Kuroda's term ends on April 8, 2023, and after the spring wage negotiations”, explained analysts at TD Securities. They expect continued FX intervention if USD/JPY rallies. “We are neutral, as the pair is fairly valued relative to spreads.”

Technical levels