USD/JPY finds support near 155.00 after collapsing on likely Japanese intervention

• USD/JPY finds support near 155.00 after collapsing from 160.00 on likely Japanese intervention.
• Investors hope that Japan's intervention will only provide temporary support to the Japanese Yen.
• The US dollar finds support in expectations that the Fed will support raising interest rates for a longer period.

The USD/JPY pair found provisional support near 155.00 in the American session on Monday. The pair recorded a sell-off from all-time highs of 160.00, which market participants recognized as a result of alleged intervention by Japanese authorities.

However, Japan's top currency official, Masato Kanda, did not confirm any intervention in the European session. Kanda stated: “Speculative, rapid and abnormal currency movements have had a bad impact on the economy and are therefore unacceptable.” Kanda stopped short of providing an appropriate level when asked about what could be the likely area where the administration could intervene if the authorities have not yet stepped forward.

Prospects for Japan to intervene in the currency market remain high, as the Japanese Yen has weakened considerably. The Japanese yen remained lower despite the Bank of Japan (BoJ) pivoting towards tightening monetary policy after maintaining a super-loose monetary policy stance for more than a decade. Although the BoJ has moved its interest rates onto a positive trajectory, investors remain concerned about the limited scope of policy tightening due to uncertainty over spiraling wage growth.

The BoJ is making moderate progress towards normalizing its policy, but strong expectations of a prolonged policy divergence between the BoJ and the Federal Reserve (Fed) are making it difficult for the Japanese Yen to consolidate.

Meanwhile, the US dollar bounces amid uncertainty ahead of the Fed's interest rate decision, which will be announced on Wednesday. The US Dollar Index (DXY), which tracks the value of the US dollar against six major currencies, recovers after discovering buying interest near 105.45. The Fed is expected to maintain the status quo for the sixth consecutive time and will maintain the argument of keeping interest rates restrictive until it is confident that inflation will sustainably return to the desired 2% rate.