Today’s trading session will be important for the performance of the price of the US dollar currency pair against the Japanese yen, USD/JPY, as markets and investors will monitor the announcement of the reading of the US economic growth rate. This will have an impact on the future of the US central bank's tightening policy. Prior to that, the price of the USD/JPY currency pair tried to test the psychological resistance level of 140.00, but it seems that investors preferred to wait for the reaction to the results of today's and Friday's data. The currency pair stabilizes around 138.75 at the time of writing.
On the other hand, the Japanese yen is recovering quickly after it fell last month to its weakest level in four decades, and there may be more turmoil in the future if the currency repeats its behavior from previous turbulent periods. Commenting on this, Kit Juckes, Senior Forex Analyst at Societe Generale SA, wrote: “The potential for a correction similar in size to what we saw in 1998/1999, 2002/04, 2007/2011 or 2016, is clear.”
The Japanese currency has risen again in recent days, spurred in part by the potential fallout from the worsening Covid situation in China, which is hurting riskier assets. The mantle of go-to-haven that seemed to be fading in recent months has been reclaimed, to an extent, as investors focused more closely on interest rate differentials. With the Bank of Japan firmly fixing rates near zero and other global central banks raising borrowing costs, this dynamic has weighed on the yen. Now there is more talk of where the Fed - and others - might hold off on raising rates, which has helped take some of the pressure off dollar strength.
The Japanese yen rose more than 7% against the dollar in November, surpassing the gains for all of its G10 peers, and more than 10% higher than the multi-decade nadir it hit on Oct. 21 again, on Monday, spurred in part by growing social unrest in China in response to Chinese President Xi Jinping's Covid-Zero policy. At one point, its value rose by 1.2% to 137.50 per dollar, its strongest level in three months, before settling again to trade around 138.71.
The US dollar is also historically a major haven currency for investors and has behaved this way for most of this year but appears to be acting less in that role amid recent moves. A big part of that is easing inflation fears and dampening market expectations of how high the Federal Reserve might take the US central bank's benchmark interest rate, diminishing the yield advantage offered by the dollar.
In a note to clients earlier this week, Juckes of Societe Generale specifically points to the situation from 1998/99 as potentially useful. In that time, USD/JPY fell from over 147 to under 102 - much more than it has moved so far in this episode - before bottoming out and finally recovering to around 135 in 2002. He also points out that investors from Japan were "significant sellers" of foreign bonds this quarter, which he described as "not surprising but positive for the yen in the days when geopolitics, energy prices and the current political stance of the Bank of Japan were not dominating the market."
Forecasts of the US dollar against the Japanese yen today:
- The price of the USD/JPY currency pair is still in a neutral situation, with a bearish tendency, supported by abandoning the psychological resistance 140.00.
- The return of stability above it will support the bulls in controlling, and thus increase the technical buying deals for the currency pair.
- On the other hand, according to the performance on the daily chart below, a breach below the support level of 137.30 will be important to confirm the strength of the current bearish correction.
- The reaction to the results of the US economic data today and the statements of Jerome Powell will be important in determining the future of the dollar-yen pair.
Ready to trade our Forex daily forecast? We’ve shortlisted the best Forex brokers in the industry for you.
