empty
20.06.2023 03:21 PM
USD/JPY: Yen falls into a trap

The Japanese yen has fallen into a trap of policy divergence. While the BoJ, at its June meeting, decided to maintain control over the yield curve and the overnight rate at the same level, its counterparts in other developed countries are tightening their monetary policies. As a result, the USD/JPY pair is rapidly rising, and the EUR/JPY quotes have reached a 15-year high.

Central bank rate hikes lead to an increase in bond yields. In June, Australia and Canada were the initiators of this process. They raised borrowing costs after a pause, surprising investors. And there's more to come. The ECB has taken another step towards monetary tightening, and the Fed has hinted at the continuation of the cycle in July. The Bank of England and the Swiss National Bank are next in line, which may raise rates by 25-50 basis points.

Against this backdrop, the Bank of Japan appears to be a peculiar outlier. It stated that inflation would slow down by the end of the year. Therefore, it is necessary to patiently maintain monetary stimulus. The majority of Reuters experts were expecting such a result from the June BoJ meeting. It significantly weakened the yen, with its trade-weighted exchange rate reaching a record low.

Yen's trade-weighted exchange rate dynamics

This image is no longer relevant

This circumstance increases the cost of imports and causes dissatisfaction within the Japanese government. They increasingly resort to verbal interventions. Finance Minister Shunichi Suzuki stated that he continues to closely monitor events in the Forex market and will take measures in the field of currency policy if necessary. Minister of Economy, Trade and Industry Yasutoshi Nishimura claims that officials are monitoring any excessive or speculative events in the currency market.

As the experience of autumn 2022 shows, verbal interventions in the Forex market achieve nothing. Currency interventions are needed. Last year, Tokyo spent about $65 billion on them. The Ministry of Finance and the central bank sold USD/JPY through intermediaries when it approached the levels of 146 and 152. This time, most Reuters experts predict that the red line will be at the 145 level.

The yen has a tough time. The stabilization of underlying inflation in developed countries forces central banks to resume or continue cycles of tightening monetary policy. This leads to an increase in bond yields and widens their spreads with Japanese counterparts. As a result, carry traders come into play. Players take advantage of the difference by buying income-generating assets and selling funding currencies, such as the yen.

This image is no longer relevant

The future dynamics of USD/JPY will depend on Jerome Powell's readiness to confirm two acts of monetary tightening by the Fed in 2023, each by 25 basis points. The Federal Reserve Chairman will speak before the House of Representatives and the Senate.

Technically, on the daily chart, USD/JPY has precisely executed a buying strategy on the breakout of the previous fair value at 139.9 and the upper boundary of the triangle at 140.2 and 140.4. Utilize the current pullback to increase long positions towards 142.5 and 144.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

US Dollar: Weekly Preview

America will once again be a major focus in the news. Surprisingly, it won't primarily be due to economic updates or the Federal Reserve meeting, but rather news surrounding Donald

Chin Zhao 23:05 2025-03-16 UTC+2

EUR/USD Weekly Preview: All Eyes on the Fed

After experiencing a significant surge of 500 pips, the EUR/USD pair has settled into a period of stagnation, awaiting further news. The Federal Reserve may either alleviate or heighten concerns

Irina Manzenko 23:05 2025-03-16 UTC+2

What to Pay Attention to on March 17? A Breakdown of Fundamental Events for Beginners

There are very few macroeconomic events scheduled for Monday, with the only notable report being on retail sales in the US. It's important to note that the market has shown

Paolo Greco 22:27 2025-03-16 UTC+2

A New Problem Rises for America – The Debt Ceiling (Expecting #SPX and #NDX to Resume Their Decline After a Likely Short-Term Recovery)

The confrontation between the U.S. and the EU has entered a new phase. The U.S. president is taking a hardline approach toward Europe, effectively following a "tit for tat" strategy

Pati Gani 14:06 2025-03-14 UTC+2

USD/JPY: Analysis and Forecast

The Japanese yen is losing ground today. Positive news on U.S.-Canada trade negotiations and reports that Democrats have secured enough votes to prevent a U.S. government shutdown are improving global

Irina Yanina 13:33 2025-03-14 UTC+2

XAU/USD: Analysis and Forecast

Gold is consolidating after reaching a new all-time high. Concerns over U.S. President Donald Trump's aggressive trade policy and its impact on the global economy continue to drive demand

Irina Yanina 10:08 2025-03-14 UTC+2

What to Pay Attention to on March 14? A Breakdown of Fundamental Events for Beginners

There are few macroeconomic events scheduled for Friday, and none of them are significant. The UK will release reports on GDP and industrial production, but strong figures are not expected

Paolo Greco 07:05 2025-03-14 UTC+2

GBP/USD Pair Overview – March 14: The Last Day of the Week as a Mere Formality

On Thursday, the GBP/USD currency pair also began a slight downward correction. While the pound did not depreciate significantly, explaining why it rose for two weeks is difficult. Of course

Paolo Greco 02:39 2025-03-14 UTC+2

EUR/USD Pair Overview – March 14: Maybe That's Enough?

The EUR/USD currency pair finally began to decline on Thursday, but once again, this movement was not linked to macroeconomic factors or fundamental events. It wasn't even related to Donald

Paolo Greco 02:39 2025-03-14 UTC+2

EUR/USD: A Southern Impulse That Should Not Be Trusted

On Thursday, the EUR/USD pair reached a three-day low of 1.0823 but did not break into the 1.07 range, as the downward momentum gradually faded. The EUR/USD pair is currently

Irina Manzenko 23:55 2025-03-13 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.