USD/JPY pushed higher towards 163.00 on Tuesday, briefly touching 163.04 to trade above 163.00 for the first time since December 1986. The US Dollar remained underpinned by safe-haven demand as markets weighed renewed Middle East tensions and higher oil prices, even as US data pointed to softer labour-market momentum. ADP Employment Change showed the four-week average easing to 16.5K from 19.25K, while cooler inflation readings have tempered expectations of further aggressive Federal Reserve tightening; persistent Japanese Yen weakness has kept focus on the risk of action by Japan’s Ministry of Finance.
Japan’s near-term calendar was described as light, with June trade figures due at 7:50pm ET ahead of CPI data later in the week. On a four-hour view, USD/JPY traded at 162.97, staying above the 20-period SMA at 162.45 and the 100-period SMA at 162.15 as it tested supply below resistance at 163.04. RSI was around 73, and support levels were cited at 162.94, then 162.75 and 162.59. A break above 163.04 would extend gains, while rejection could prompt consolidation or a pullback.
Risk of Japanese Government Intervention and Trading Strategies
With USD/JPY hitting a multi-decade high of 163.04, we advise derivative traders to prepare for sudden, severe volatility driven by Japanese government intervention. Historically, Japan’s Ministry of Finance has not hesitated to act, spending an unprecedented 9.8 trillion yen ($62 billion) in a previous defense of the currency to punish speculators. Traders should consider buying short-dated USD/JPY put options to hedge against a sudden, sharp reversal.
Technically, the 4-hour Relative Strength Index (RSI) is deeply overbought at 73, indicating that the upward momentum is heavily stretched. We suggest placing tight stop-loss orders on any remaining long positions just below the immediate support of 162.94. If the pair fails to break above the 163.04 resistance, a quick pullback toward the 100-period SMA at 162.15 is highly likely.
Volatility Outlook and Option Strategies
Upcoming economic events, including Japan’s trade balance and CPI releases, are expected to push option implied volatility much higher in the coming days. We recommend utilizing long volatility strategies, such as straddles, to profit from sharp moves without needing to guess the direction. This approach shields our portfolios from sudden geopolitical shocks or surprise rate decisions from the Bank of Japan.
