- According to yesterday's trading, the Japanese yen failed to maintain its upward rebound against the US dollar and trimmed some of its sharp gains at the beginning of the trading week.
- The yen depreciated again due to a mix of disappointing intervention from Tokyo in the forex market and renewed focus on US economic data.
- Currently, the financial markets closely monitor the yen as it may open the door to currency manipulation by other countries, especially China.
- Also, the USD/JPY exchange rate stabilized around the resistance level of 157.98 at the time of writing this analysis and plummeted to the support level of 156.05 yesterday.
Last week, the price of the Japanese yen fell to its lowest level against the US dollar since April 1990. For its part, Japan spent more than $35 billion to support the currency on Monday, according to Bank of Japan data. Aside from that, it is still unclear what officials will do.
The Bank of Japan kept its monthly bond-buying program unchanged for May. Investors are trying to determine when the Bank of Japan can gradually reduce this initiative as it will inevitably lead to a surge in Japanese government bond (JGB) yields. Analysts say, "The trend remains higher for the dollar against the yen, and we really need to see any kind of convergence in policy. Does the US bond market pick up a more sustainable bid that takes the dollar-yen away from the highs?"
Meanwhile, following hotter-than-expected wage inflation, investors abandoned hopes of a rate cut by the US Federal Reserve anytime soon. The Federal Reserve will conclude its two-day Federal Open Market Committee (FOMC) policy meeting today.
Furthermore, the futures market is not anticipating a rate cut, traders will scrutinize Fed Governor Jerome Powell's comments in his post-meeting press conference.
In other news, there are concerns that the US allowing Japan to intervene in the forex market may prompt other markets to do the same, especially China. The last time Beijing devalued its currency by 3% was in August 2015, sparking widespread selling. Now that its Asian rivals, such as Japan and South Korea, can shout: “What about me?”
Moreover, if the value of the Chinese yuan declines, this could lead to the outbreak of a global trade war that would affect international growth prospects.
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USD/JPY Technical analysis and Expectations Today:
The price of the Japanese yen has decreased by 12% against the US dollar since the beginning of the year. The dollar's recovery increased after US Labor costs brought "very unwelcome" news to the US Federal Reserve, as the US Federal Reserve's closely monitored wage gauge added new evidence to the agenda showing that inflationary pressures in the US are increasing. Accordingly, it is expected that the US Central Bank will adhere to the tightening path, and accordingly, the upward trend for the currency pair US Dollar against the Japanese Yen (USD/JPY) will remain in place and a return to record levels is possible unless Japanese intervention in the markets occurs. Currently, the closest resistance levels for the currency pair are 158.80 and 160.00, respectively.
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