The Japanese yen fell to a two-decade low after Bank of Japan Governor Haruhiko Kuroda pledged to maintain monetary policy in order to support an economic recovery, fueling speculation about whether the Japanese authorities will intervene again to support the currency.
The USD/JPY currency pair continued its upward trajectory with gains to the level of 146.97, its highest level in 24 years, and stable around it at the time of writing the analysis, before the announcement of important US inflation figures.
The current dollar-yen levels contributed to Japan’s intervention of about $20 billion to buy the yen in September, the first intervention to support the currency since 1998. For his part, Kuroda said at an event at the Institute of International Finance in Washington: “We have to continue the monetary easing until we achieve the 2% target. In a sustainable and stable way.” And “the economy is still recovering from the epidemic, so we have to continue to support the economy to recover.”
Earlier this week, Japanese Prime Minister Fumio Kishida also signaled his support for the Bank of Japan's ultra-easy monetary policy despite the Japanese yen's decline this year, the Financial Times reported. The Bank of Japan is one of the few remaining global central banks in the world that is keeping rates very low while the majority of its peers are aggressively raising interest rates to combat inflation and keep pace with the Fed's tightening regime.
Kuroda's comments reiterated that the BoJ will not deviate from its loose policy anytime soon. This exacerbates the policy difference between the Bank of Japan and the US Federal Reserve. Price markets are betting that the Fed will raise interest rates by at least 150 basis points by the first quarter.
This is likely to cause more pain for the Japanese yen in the meantime, especially as analysts predict that this year's unrelenting US dollar will strengthen as the Federal Reserve continues its drive to stamp out inflation. Japanese policy makers maintained their warnings against investors selling the Japanese currency as the dollar rose to a 24-year high against the yen, fueling speculation of a second round of intervention. Prior to that, the greenback rose to 146.35 yen, a level not seen since August 1998 during the Asian financial crisis, moving above levels that led to the Japanese authorities' intervention last month to stem the yen's excessive weakness. The sharp bullish trend for the currency pair is stable today as traders prepare for US inflation data and its implications for US interest rate hikes in the future.
For his part, Japan's Chief Cabinet Secretary Hirokazu Matsuno told reporters, "We are closely monitoring foreign exchange movements with a high sense of urgency and are ready to take appropriate steps on excess movements."
The comment came after Jiji Press quoted Finance Minister Shunichi Suzuki as saying that the country's position had not changed at all and that it would take necessary steps in the foreign exchange market if necessary. “What was important was the speed of the forex market’s movements,” Gigi quoted Suzuki as saying while traveling to Washington for a meeting of financial leaders from the Group of Twenty major economies, not any levels. Neither Matsuno nor Suzuki used stronger terms to describe Wednesday's yen's moves such as "excessive", "one-sided" or "speculative", suggesting that currency intervention may not be imminent.
Last month, Japanese authorities sold dollars and bought yen in their first market intervention in 24 years, spending 2.8 trillion yen ($19.2 billion) to slow the rapid decline in the yen that was seen as a threat to the economy. Market players have been closely watching how Suzuki can interpret Japan's stance on intervention and whether the country will get support from the United States and other countries at this week's G20 meeting in Washington.
While Japanese officials have said that they do not necessarily need US approval to take action in the currency markets, they have repeatedly emphasized the importance of seeking an American understanding, which is seen as giving them legitimacy.
Forecast of the US dollar against the yen today:
- The general trend of the USD/JPY currency pair is still bullish.
- Recent gains have already moved the technical indicators towards sharp overbought levels.
- Forex investors may prepare for profit-taking at any time, and it is better to think about choosing selling levels and not buying from its highest levels.
- The nearest targets for the current trend are 147.10 and 148.20, respectively.
On the downside and according to the performance on the daily chart, there will be no first breakout of the trend without moving below the 142.00 level. The pair will remain bullish until the markets react to the US data and any strong indications from Japan to intervene.
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