Japanese Yen Intervention: Our Forecast Was Right. What’s Next for USD/JPY?

Over the past few weeks, we published several articles on StudyWallStreet presenting our outlook for the Japanese yen. While much of the market continued to expect USD/JPY to extend its rally toward the 166 area, we took a different view.

Our analysis suggested that the breakout above the upper trendline was likely to become a false breakout, setting the stage for a significant bearish reversal rather than the beginning of a new bullish trend.

Following Japan’s latest intervention and the sharp decline in USD/JPY, it is now time to review what happened and discuss the potential targets ahead.

Was the Breakout Above the Trendline a Bull Trap?

In our previous analysis, we identified the upper trendline as a major resistance area. We argued that even if USD/JPY managed to break above it and register a new high, there was a strong probability that the move would turn into a false breakout rather than the start of a new upward trend.

That was the foundation of our forecast.

At the time, many market participants were focused on the possibility of further dollar strength against the yen. Our view was very different. We believed that the area near the upper trendline represented an attractive location for a major reversal.

Breakout to a New High in USD/JPY

USDJPY Daily Chart

Why Did We Believe the Intervention Was Not Over?

One of the key factors behind our analysis was history.

Looking back at previous Japanese currency interventions, we found that the first intervention is often not the final turning point. In many cases, USD/JPY briefly recovers and even reaches a new high before beginning a much larger decline.

This historical behavior played an important role in our outlook.

We also found it difficult to believe that policymakers in Tokyo would continue to tolerate further yen weakness after the previous intervention had failed to produce a lasting reversal.

For that reason, even after USD/JPY recorded a fresh high, we maintained our view that the market was approaching the final stage of the bullish trend rather than the beginning of another major rally.

Did the U.S. Treasury Secretary Reinforce Our View?

In recent days, additional support for our macroeconomic view came from Washington.

U.S. Treasury Secretary Scott Bessent stated in media interviews that the Japanese yen was significantly undervalued and expressed concern about excessive volatility in the foreign exchange market.

In our opinion, these comments strengthened the case that both U.S. and Japanese authorities were becoming increasingly uncomfortable with the continued weakness of the yen.

What Can We Learn From the Updated Chart?

The market has now started to validate the scenario we presented.

USD/JPY reversed almost exactly from the resistance area we identified in advance and has already begun moving toward the downside targets discussed in our previous analysis.

USDJPY Daily Chart

Comparing the two charts clearly illustrates how an area that many investors viewed as the beginning of another bullish breakout ultimately became the starting point of a sharp reversal.

Is the Lower Trendline the Next Target?

Although the market has already experienced a significant decline, we believe the technical picture remains largely unchanged.

Our first objective continues to be a move toward the lower trendline of the rising channel.

If that support level eventually breaks, the market could open the door to the next major downside target.

Is the Open Gap Near 148 Still a Realistic Target?

In our original article, we also identified the open price gap near the 148 level as one of our long-term objectives.

The fact that the reversal began almost exactly where we expected strengthens our confidence that this target should remain on investors’ radar.

Naturally, markets rarely move in a straight line, and temporary corrections should always be expected. However, based on our technical analysis, our primary scenario remains unchanged.

What Can Investors Learn From This Forecast?

One of the most important aspects of market analysis is not explaining what happened after the move has already taken place. The real challenge is presenting a clear scenario before the market begins to move.

In our previous articles, we argued that USD/JPY was approaching the end of its bullish trend and that the breakout above the upper trendline was likely to become a false breakout before a sharp decline.

Following Japan’s latest intervention and the market’s reaction, that scenario has begun to unfold.

We will continue monitoring the situation closely in the coming weeks to see whether USD/JPY reaches the lower trendline and, eventually, whether the market continues toward our longer-term objective of closing the open gap near the 148 area.

Disclaimer: The author may hold positions in the financial instruments mentioned in this article. The opinions expressed are solely those of the author and do not constitute investment advice, investment marketing, or a recommendation to buy or sell any financial instrument. Trading in financial markets involves substantial risk and may result in the partial or complete loss of invested capital.