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

EUR/USD. What Does the U.S. CPI Report Indicate?

Traders of the EUR/USD pair interpreted the U.S. CPI report in favor of the U.S. dollar, despite the release being somewhat mixed. The report reflected an acceleration in both headline

Irina Manzenko 00:03 2025-07-16 UTC+2

Trump Misleads Again—and Loses

Over the past few months, Trump has repeatedly criticized the Federal Reserve for its reluctance to cut interest rates. According to the U.S. President, such a high rate (4.5%)

Chin Zhao 00:03 2025-07-16 UTC+2

The Dollar Launches a Witch Hunt

Everyone gets what they want. Supporters of the U.S. dollar are pleased that American inflation accelerated in June, leaving the Federal Reserve with no grounds to cut the federal funds

Marek Petkovich 00:02 2025-07-16 UTC+2

Pressure on the Pound Is Mounting

Incoming macroeconomic data from the UK appears distinctly weak. GDP unexpectedly declined by 0.1% in May instead of the forecasted 0.1% growth. The trade balance deficit exceeded expectations, industrial production

Kuvat Raharjo 00:02 2025-07-16 UTC+2

AUD/JPY. Analysis and Forecast

Today, Tuesday, during the European session, the AUD/JPY pair reached the round level of 97.00. The yen continues to show relative weakness amid growing expectations that the Bank of Japan

Irina Yanina 12:44 2025-07-15 UTC+2

EUR/USD. Analysis and Forecast

On Tuesday, the EUR/USD pair is gaining positive momentum, recovering from more than two weeks of declines triggered by Trump's threat to impose new tariffs. On Saturday, Trump announced plans

Irina Yanina 12:30 2025-07-15 UTC+2

The European Union Finalizes Second List of Countermeasures

The European Union has finalized its second list of countermeasures against U.S. goods, totaling 72 billion euros. This step comes in response to the ongoing trade tensions between

Jakub Novak 11:25 2025-07-15 UTC+2

Trump's Actions Alarm Germany

While the euro remains relatively stable, German Chancellor Friedrich Merz is not feeling as confident. In a recent interview, he stated that U.S. President Donald Trump's threat to impose 30%

Jakub Novak 11:11 2025-07-15 UTC+2

Rising Inflation in the U.S. Will Decrease the Likelihood of Fed Rate Cuts (Possible Resumption of USD/CAD and Bitcoin Growth)

While President Donald Trump continues playing his favorite game called "Make America Great Again," market participants are calculating the cost of U.S. trade wars with nearly the entire world

Pati Gani 09:58 2025-07-15 UTC+2

The Market Will Break Out of Its Cage

Deep down, markets still believe tariffs could become an inflationary force. However, without confirmation from official data, investors are not ready to sell the S&P 500. They've grown accustomed

Marek Petkovich 09:14 2025-07-15 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback