- The Japanese Yen continues to give ground against the US Dollar, with USD/JPY below 150 and threatening to break higher.
- BOJ Governor Ueda’s dovish comments fueled the latest rise in USD/JPY.
- Japanese authorities may intervene as key price and yield levels approach or touch.
He Japanese yen (JPY) has given ground to the US dollar (USD) during Monday morning, with the USD/JPY pair falling from a high of 149.98 to 149.71 at the time of writing. At last check, the Yen/Dollar pair fell 0.09% from last week’s close. However, the pair remains below the key 150 level, threatening to break higher if the long-term uptrend decides to regroup and extend.
Comments from Bank of Japan Governor Katsuo Ueda fueled the pair’s recent rise. Responding to figures showing a drop in inflation last week, Ueda said the bank would maintain its current accommodative approach. His dovish words pressured the yen and boosted USD/JPY.
Japanese Yen News and Market Movements
- The Japanese Yen continues its bearish trend following BOJ Governor Kazuo Ueda’s comments on Friday in which he reiterated that the BOJ would “patiently maintain the current accommodative policy.”
- These statements came after the publication of Japanese inflation data for September, which revealed a slowdown in price growth.
- The national Consumer Price Index fell to 3.0% from 3.2% a year ago. The national CPI excluding fresh food fell to 2.8% from 3.2% year-on-year. Although still above analyst estimates (2.7%), it is the first time since August 2022 that the index has fallen below 3.0%. The national CPI excluding food and energy fell to 4.2% from 4.3% year-on-year.
- The 10-year Japanese government bond (JGB) yield has risen to approach the 1.0% year-on-year threshold. If it reaches 1.0%, the Bank of Japan will likely further ease its monetary policy to reduce it, which will push the Yen even lower.
- To further complicate matters, USD/JPY briefly surpassed the key 150 threshold on Monday. This is the level at which the Japanese Ministry of Finance has historically intervened in markets to strengthen the yen and prevent imports from becoming more expensive.
- According to Commerzbank analysts, the market idea that the MdF usually intervenes to defend 150 could lead to selling pressures, as the idea becomes a “self-fulfilling prophecy.”
- “The market assumption that 150 constitutes the MdF’s line of defense may become a self-fulfilling prophecy,” Commerzbank said in its note.
- A decisive break above 150, however, could lead to a strong move substantially higher. The breakout of this level on Monday “constitutes a signal that the fundamentally justified exchange rate from a market point of view is well above 150,” Commerzbank said.
- Japanese authorities are at a crossroads, as pressure to maintain the 150 threshold will likely lead to a weakening of the yen, while at the same time maintaining the 150 threshold will require the opposite: a stronger Yen.
Japanese Yen Technical Analysis: Right Triangle in Uptrend
US Dollar dynamics will also influence the pair, including next week’s data release. The Fed’s preferred measure of inflation (PCE price index) will be the most important when it is released on Thursday, October 27, along with Michigan consumer confidence. US Durable Goods Orders and GDP, which will be released on Friday, October 28, could also affect the Dollar.
The USD/JPY is in a general bullish trend, with increases in the long, medium and short term.
This uptrend is expected to continue, with the next primary target at the highs of 152.00 reached in October 2022.
The pair is forming a possible ascending triangle on the daily chart and a decisive break above the October 3 highs of 150.16 would provide confirmation of a breakout of the triangle – also with a target at or around 152.50.
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US Dollar vs. Japanese Yen: Daily Chart
In technical terms, a “decisive breakout” consists of a long green daily candle that breaks cleanly above the critical level in question and then closes near the day’s high. It could also be three consecutive days on the rise that break above the level and the last day closes near its high.
Triangles are sometimes the penultimate formations of a trend, suggesting that the current uptrend may be nearing its apex.
US Dollar FAQ
What is the US Dollar?
The United States Dollar (USD) is the official currency of the United States of America, and the “de facto” currency of a significant number of other countries where it is in circulation alongside local banknotes. According to 2022 data, it is the most traded currency in the world, with more than 88% of all global currency exchange operations, equivalent to an average of $6.6 trillion in daily transactions.
After World War II, the USD took over from the Pound Sterling as the world’s reserve currency. For most of its history, the US dollar was backed by gold, until the Bretton Woods Agreement of 1971.
How do the decisions of the Federal Reserve affect the Dollar?
The single most important factor influencing the value of the US Dollar is monetary policy, which is determined by the Federal Reserve (Fed). The Fed has two mandates: achieve price stability (control inflation) and promote full employment. Your main tool to achieve these two objectives is to adjust interest rates.
When prices rise too quickly and inflation exceeds the 2% target set by the Fed, it raises rates, which favors the price of the Dollar. When Inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates, which weighs on the Dollar.
What is Quantitative Easing and how does it influence the Dollar?
In extreme situations, the Federal Reserve can also print more dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit into a clogged financial system.
This is an unconventional policy measure used when credit has dried up because banks do not lend to each other (for fear of counterparty default). It is a last resort when a simple lowering of interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy US government bonds, primarily from financial institutions. QE usually leads to a weakening of the US Dollar.
What is quantitative tightening and how does it influence the US dollar?
Quantitative tightening (QT) is the reverse process by which the Federal Reserve stops purchasing bonds from financial institutions and does not reinvest the principal of maturing bonds into new purchases. It is usually positive for the US dollar.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
