Japanese policymakers and business leaders seem more optimistic about the recent slide in the yen than they were about the crash that triggered intervention last year - a sign that they see weakness as temporary. According to the forex market trading, the USD/JPY currency pair jumped to the 144.70 resistance level, its highest in 8 months. The Japanese yen is at its weakest level against the euro in 15 years, and panic in 2022 does not seem to be running through the veins of officials, consumers, and corporate executives just yet. Last year, Japan spent $65 billion on its direct purchases of the yen to help drag it off its lowest level. In three decades against the dollar.
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A key factor is the perception of global central banks that they are closer to the end of the global rate hike cycle than the beginning. While it remains unclear when those like the US Federal Reserve will stop, that view helped assuage fears that Japan is looking into the abyss of a yen free fall. A prolonged period of modest currency weakness could set the stage for a stronger yen in the long run if it helps the Bank of Japan boost growth, hit its inflation target and finally embark on a pivot from the past decade of ultra-accommodative monetary policy.
Bottom line support for exporters from a soft yen and renewed optimism about the economy has already helped the stock market lift to 33-year highs. “Pressure on the yen will not mount much from here,” said Atsushi Takeda, chief economist at Itochu Research Institute. "The Fed is approaching its final interest rate with one increase likely, two times at most". And “the yen is not enjoying the same downward momentum as last year.”
Overall, the stark contrast between Japan's ultra-low interest rates aiming to inflame prices and the US' aggressive rate hikes aimed at calming them has provided the main backdrop for the yen's weakness since the Fed began its tightening campaign early last year. The widening trade deficit of the Asian country along with the rise in commodity prices added fuel to this fire. The occasional brake on this trend has been recession fears, banking sector turmoil, and the realization that Tokyo will act to defend its currency, even if it means angering its allies in Washington.
Japan has long focused on the pace of decline rather than any particular target. When officials entered the markets with the currency approaching 146 in September and 152 in October, each time the dollar moved more than 2 yen in less than 24 hours. Volatility is at much lower levels this year. But while the yen's rate of 144 yen to the dollar now looks far less terrifying than it did a year ago, further declines towards the 2050s are still likely to bring Japan out of its new comfort zone and onto a path to new measures. Masato Kanda, the top currency official, said the authorities will respond if there are excessive movements.
Those levels would also be a bad place for Japanese Prime Minister Fumio Kishida to consider a snap election later this year, as it is likely to inflame voter discontent over the rising cost of living. The US Treasury's decision in mid-June to drop Japan from its currency watch list appears to give an implicit green light for more JPY purchases by Tokyo should justify sharp moves.
Dollar expectations against the Japanese yen today:
- According to the performance on the daily chart below, the price of the USD/JPY currency pair is still in a strong and sharp bullish path.
- Its recent gains have pushed technical indicators.
- All timeframes to strong overbought levels, and strong profit-taking sales may occur at any time.
I still prefer to think of selling from those peaks rather than buying without taking risks, and there will be no first break from the current bullish trend without the currency pair moving below the psychological level of 140.00.
The currency pair will be affected, along with the policies of central banks, by the announcement of the US economic growth reading and the number of weekly jobless claims
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