- As predicted, with the purchase of the US dollar against the Japanese yen from every downward level, the currency pair is moving steadily near the psychological resistance of 160.00, above which there is increasing talk of imminent Japanese intervention in the forex markets to prevent further collapse of the Japanese yen.
- The bulls had driven the dollar/yen pair towards the resistance level of 158.55, the highest level for the currency pair in more than five months.
Japan's Plans to Prevent Further Collapse of the Yen
In this regard, the Japanese Finance Minister has recently reiterated his warning against one-sided speculative moves in the forex market, noting the government's readiness to intervene if excessive volatility persists. According to trades, the Japanese yen has come under pressure amid growing uncertainty about the timing of interest rate hikes by the Bank of Japan. Bank of Japan Governor Kazuo Ueda has confirmed that any policy adjustments will depend on economic, price, and financial conditions, emphasizing the importance of sustainable wage growth. Also, the Bank of Japan has highlighted the need for caution in light of domestic and global uncertainties.
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The dollar/yen will remain on its upward trajectory until Japanese intervention, considering that Trump is not very fond of market intervention.
Has the US Dollar Reached its Peak Gains?
According to a new analysis from Bank of America, the US dollar is "perfectly priced." If true, this means the current strength trend is nearing its limits, which could ease pressure on global currencies. Athanasios Vamvakidis, an analyst at Bank of America, says, "Much of the US dollar's price is in this context. The US dollar has reached a historically extreme valuation."
Looking at the Bank for International Settlements' real effective exchange rate index, the US dollar is the strongest it has been in 30 years. Estimates from the International Monetary Fund's real effective exchange rate equilibrium model lead foreign exchange analysts at Bank of America to a similar conclusion. The analysts there stated, "The US dollar appears to be overvalued by 18.5%, the highest in the past 30 years, except when it was overvalued by 19% during the energy shocks of the war in Ukraine in 2022."
According to forex market trades, the US dollar was the best-performing currency in 2024, topping the leaderboard after rising from October amid signs of a rebound in US economic growth and inflationary pressures. These expectations only accumulated following Donald Trump's victory in the November elections. This has prompted the Federal Reserve to warn that it is likely to significantly slow the pace of US interest rate cuts. In fact, after strong US data releases on Tuesday, the market does not expect another cut in the first half of the year.
USD/JPY Technical Analysis and Expectations Today:
Dear reader, as previously predicted, the overall trend of the USD/JPY pair will remain bullish. Technically, the bulls may quickly reach the psychological resistance of 160.00 as long as the US dollar is strong and as long as there is no Japanese intervention in the currency markets. Stronger-than-expected US jobs numbers may give the bulls that opportunity. Meanwhile, the currency pair is on track for a new weekly bullish close and may remain so until Trump's inauguration this month. Volatility indicators, the Relative Strength Index, and the MACD are on their way to overbought levels. To break the upward trend of the USD/JPY pair, bears must first move towards the support level of 155.50. finally, we still prefer buying the USD/JPY from any downward level.
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