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
Summary
Urgency
Analytic
Igor Kovalyov
Start trade
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

GBP/USD Overview. Weekly Preview: A Package of UK Data the Pound Does Not Need

The GBP/USD currency pair continues its confident upward movement after a month-long correction. This correction had both technical reasons (price cannot constantly move in one direction, especially in the cryptocurrency

Paolo Greco 03:35 2025-08-11 UTC+2

EUR/USD Overview. Weekly Preview: The Dollar Faces New Challenges

The EUR/USD currency pair is showing all the signs of resuming the upward trend that could be named after Donald Trump. The decline of the US currency essentially began

Paolo Greco 03:35 2025-08-11 UTC+2

Michelle Bowman Supports Three Rounds of Easing. Part 2

Michelle Bowman was appointed to her position by Donald Trump in 2018, so her dovish stance raises no questions. However, concerns over the labor market are so significant that policymakers

Chin Zhao 00:50 2025-08-11 UTC+2

Michelle Bowman Supports Three Rounds of Easing. Part 1

Finita la comedia. This is the best way to describe the situation for the U.S. currency. For a long time, I wrote that the Federal Reserve had no grounds

Chin Zhao 00:50 2025-08-11 UTC+2

U.S. Dollar. Weekly Preview

It's fair to say that there will be more upcoming news out of the U.S. than from the eurozone and the UK combined — even without looking at the events

Chin Zhao 00:48 2025-08-11 UTC+2

British Pound. Weekly Preview

The British currency is also poised for further gains. We have seen the most ideal three-wave corrective structure possible. The key now is to ensure it does not evolve into

Chin Zhao 00:48 2025-08-11 UTC+2

Euro Currency. Weekly Preview

The euro remains on an upward path against the U.S. dollar, supported by both the news backdrop and the wave pattern. Two of the most important types of analysis favor

Chin Zhao 00:48 2025-08-11 UTC+2

EUR/USD. Weekly Preview. ZEW Indices, Retail Sales, CPI/PPI

The upcoming trading week will be dominated by U.S. inflation data. We will learn the July readings of key inflation indicators, which have the potential to trigger strong volatility

Irina Manzenko 00:48 2025-08-11 UTC+2

USD/CAD. Analysis and Forecast

Today, the pair is declining toward the psychological level of 1.3700. Traders have increased their expectations of a September Fed interest rate cut following a weaker-than-forecast July U.S. Nonfarm Payrolls

Irina Yanina 13:14 2025-08-08 UTC+2

AUD/JPY. Analysis and Forecast

Diverging expectations regarding the policies of the Reserve Bank of Australia (RBA) and the Bank of Japan are holding back further growth in spot prices. Today, the AUD/JPY pair

Irina Yanina 11:26 2025-08-08 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.