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- The weakness of the Japanese yen in the markets has been continued by the US dollar against the Japanese yen (USD/JPY), which reached the resistance level of 150.77 last week.
- However, this level is the highest for the currency pair in a year.
- It will be on an important date this week, as both the Central Bank of Japan and the US Federal Reserve will announce an update to their policy.
Has the Bank of Japan Already Intervened?
At the end of last week's trading, the currency pair underwent selling operations that led it towards the support level of 149.45, before closing trading around the 149.60 level, before these important and influential events.
Regarding what is expected in this exciting week, The Japanese yen may rise over the next three months as the Bank of Japan takes steps towards completely abandoning its policy to contain Japanese bond yields, according to Swiss bank Julius Baer. In this regard, a new analysis conducted by David Alexander Mayer of Julius Baer indicates that adjustments to the Bank of Japan's yield curve control are likely to be made at Tuesday's meeting considering the recent decline in the value of the Japanese yen, which pushed it past a key threshold.
The analyst added that the adjustments “will help the Japanese yen stabilize,” putting it on track to strengthen its three-month target, which is well below 150. Moreover, speculation about the yen’s future increased this week after the dollar-yen (USDJPY) exchange rate breached a psychological level of 150. Mainly, this level is considered a “line in the sand” for Japanese authorities who have become uneasy about the devaluation of their currency during the 2023 session.
There were sudden declines in the US dollar against the Japanese yen on two occasions when it exceeded 150 (including last Thursday), leading to speculation in financial circles that the central bank or authorities in the Ministry of Finance had directly intervened in the market to defend the currency. According to the analyst, “It is not yet clear whether the Japanese Ministry of Finance has already begun to intervene or not, as data related to the interventions are presented at the end of the month. In any case, the so-called “price checks”, which last year served as a precursor to fiscal stimulus policy” and “interventions have not yet been announced, with officials only stating that they are watching with great interest any major unwanted movements.”
Ultimately, any sustained strength in the yen is likely only if the Bank of Japan relaxes its tight control over the value of Japanese bond yields. Yield Curve Control (YCC) is a form of quantitative easing whereby the bank keeps yields under control by purchasing bonds, thus ensuring that the cost of funds in Japan remains at reasonable levels. One side effect of this program is that Japanese yields are incredibly uncompetitive for international and domestic investors, creating currency flows that weaken the yen. However, the analyst says that even adjustments to the YCC program could help the yen move forward.
So far, the Bank of Japan will announce the results of the next policy meeting tomorrow, Tuesday, October 31. The analyst believes that the amendments to the YCC will have the ability to stabilize the yen.” Moreover, he is sticking to his expectations that the USD/JPY exchange rate will fall to 145 over the course of three months. Therefore, the move will support the Swiss bank's expectations that the Bank of Japan will completely abandon the YCC early next year.
USD/JPY Outlook and Predictions
The USD/JPY pair has now retreated to trade a few levels below the 100-hour moving average line. As a result, it appears that the currency pair has breached the oversold levels of the 14-hour RSI. In the near term, and according to the performance on the hourly chart, it appears that the USD/JPY currency pair is trading within a descending channel. Also, the MACD indicator on the hourly chart appears to be supporting the downward trend after completing a bearish crossover. Therefore, the bears will look to extend the current series of declines towards 149.15 or lower to the 148.73 support. On the other hand, the bulls will be looking to pounce on profits at around 149.98 or higher at the 150.40 resistance.
In the long term, and according to the performance on the daily chart, the USD/JPY currency pair appears to be trading within an upward channel. However, the daily MACD appears to be losing ground as it attempts a bearish crossover. Therefore, the bears will target potential pullbacks at around 148.24 or lower at the 146.64 support. On the other hand, the bulls - the bulls - will target long-term profits at around 151.39 or higher at the 152.85 resistance.
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