The Japanese Yen has witnessed a significant decline to its lowest levels in decades against major currencies, drawing attention to the Bank of Japan (BoJ) to see if it can rescue the struggling currency. As the USD/JPY pair reached historical levels and the bank abandoned its negative interest rate policy, this article delves into the Japanese Yen Analysis and future forecasts, covering:
- Technical Analysis of USD/JPY Pair
- Another rate hike in sight?
- Technical Analysis of GBP/JPY Pair
- Japanese Yen Analysis and Future Forecasts
Technical Analysis of USD/JPY Pair
With the Yen falling to multi-decade lows against its main competitors, all eyes are on the Bank of Japan to see if they can save the ailing currency. After the USD/JPY pair hit 160.00 as the central bank dropped its negative interest rate policy, price action is now gearing up for another test at the psychological zone. Bouncing almost 2000 pips from the beginning of the year, the Yen has been the go-to currency for traders to make easy profits.
The USD/JPY pair has reached its highest level since 1990, but with inflation steadily dropping to the targeted 2%, what can we expect from the Bank of Japan’s leadership?
Another rate hike in sight?
Many economists are asking the same question, is another hike an option?
The Japanese economy has been under low interest rates for so long that it could be a case of too much too soon for progressive hikes. We saw the Fed slip up last year with their tightening policy when SVB, Silvergate and Signature Bank collapsed. So, there is an expectation that Governor Kazuo Ueda will tread carefully to get to their inflation target. As the economy desperately attempts to get back on its feet there must be a note of caution. As a weaker Yen squeezes spending by increasing import costs, and inflation could rise again.
Technical Analysis of GBP/JPY Pair
It’s not only the USD/JPY pair that has been affected. Minors such as the GBPJPY pair have seen a sharp advance above 200.00 for the first time in 15 years. With sellers attracting more sellers, exporters have been discouraged from converting proceeds into the Yen, decreasing demand even further. Adding more fuel to the fire, Japan lost its status recently as the world’s third biggest economy as it slipped into a technical recession.
Minor pairs are also advancing over the Japanese Yen, such as the GBP, which recently hit 200.00!
Markets are focused on the potential pace of further rate hikes. However, with the Bank of Japan announcing it will maintain interest rates at current levels, another round of Yen sell-offs emerged, adding more pressure on the currency.
Japanese Yen Analysis and Future Forecasts
In essence, fundamental forecasts are crucial for the next monetary move. PMI, GDP, and employment all play significant roles in determining the path the Bank of Japan will take next. If there are no major factors justifying another rate hike, then it’s unlikely to happen. With inflation slowly approaching the 2% target, the initial suggestion is that the central bank will take some time before considering another rate hike.
However, other central banks may play a role in alleviating the situation. If the Federal Reserve, along with the ECB and BoE, were to start easing, it would narrow the rate gap and support the Yen. With the Bank of England indicating rate cuts will occur in the summer, this could trigger a global domino effect.
The main challenge lies in strengthening the Yen, which would require the Bank of Japan to raise rates. However, this is challenging as tighter monetary policy would weigh heavily on the economy. Hence, ongoing economic data and its implications for future rate paths could have a more significant impact on Yen pairs than the actual rate decision of the Bank of Japan.
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