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Yen Intervention Backfires: Bearish Signal Emerges
6 May
Summary
- Japan spent $35 billion recently to halt yen's slide.
- Intervention created a bearish triple bottom on yen chart.
- Analysts predict yen may weaken despite official efforts.
Japan has deployed significant financial resources, spending at least $35 billion over recent days, in a concerted effort to curb the yen's depreciation against the dollar. Despite these substantial interventions, analysis of the yen's price chart reveals a potentially negative outcome for Tokyo's currency. The yen saw sharp gains during market interventions, including one on April 30 and potentially two other occasions since then, as authorities sought to support its value.
However, each instance of a yen strengthening was followed by a reversal. This recurring pattern, where the dollar versus yen briefly fell below key technical levels before closing above them, has formed what technical analysts term a 'triple bottom.' This formation, characterized by three distinct lows from which the market has pulled away, is widely interpreted as a bearish indicator for the yen, suggesting an outlook for future weakening.
The long-term effectiveness of Japan's currency defense may now hinge on the sustained commitment of its officials to continued market intervention. The chart patterns suggest that the recent efforts, while substantial, may have only temporarily stemmed the tide and could paradoxically signal further depreciation ahead.
