The Japanese yen fell to its lowest level since November as investors shifted their focus from the Fed’s hawkish decision to the Bank of Japan’s policy decision on Friday.. The gains of the currency pair of the US dollar against the Japanese yen increased, USD/JPY, to reach the resistance level of 141.46, the high of 2023. Sharp losses in the Japanese yen, triggered by comments from Japanese Prime Minister Hirokazu Matsuno that excessive movements are not desirable. Last month, when it only fell to a similar level, senior currency official Masato Kanda said the government would take action if necessary after an unscheduled meeting between the Bank of Japan, the finance ministry and the Financial Services Agency.
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In contrast, Wednesday’s hawkish stance by U.S. central bank officials is in sharp contrast to policymakers at the Bank of Japan, who stuck to monetary easing, a disparity that favors the dollar over the yen. The Fed expects borrowing costs to rise from a previous high, while all economists in a Bloomberg survey see the Bank of Japan keeping its loose policy unchanged on Friday.
Takeshi Ishida, Forex Analyst Resona Bank Ltd. to which he said: “Due to market movements and Fed Policy Outlookthere is an increased possibility that the three-way meeting will take place, and that market concern is likely to grow.” And the upside between the dollar and the yen may be limited as US Treasury yields haven’t risen much.”
Thursday’s demand for the US dollar is also likely to be affected by Japanese importers, who typically buy the dollar on trading days that are multiples of five, such as the 10th, 15th and 20th of each month.
Looking ahead to Friday, BoJ officials are likely to see little need to adjust the yield curve control program given some improvement in bond market performance, according to people familiar with the matter. BoJ Governor Kazuo Ueda said earlier this month that the Bank of Japan has consistently said it will continue to ease until its target is reached in a steady manner, fueling further speculation that the central bank will remain dovish in the coming months.
Bank of Japan’s Ueda is likely to keep the bond market on his side for now.
Last year, the yen’s weakening to around 146 against the dollar led to Japan’s first intervention to support the currency since 1998, despite repeated official warnings of direct action. The Japanese currency has fallen by about 7% this year. Rodrigo Catrill, strategist at National Australia Bank Ltd in Sydney, said: “A sustained break above the 141 resistance opens the door to a test of levels above 142, possibly very quickly.” The intervention is unlikely to do much to stem the yen’s weakness, it is merely an opportunity for a reset short positions.
- The upward movement of the USD/JPY currency pair this week was the motive for the technical indicators to move towards strong overbought levels.
- The currency pair may remain in its upward trajectory pending the reaction to monetary policy decisions by the Bank of Japan.
- Emphasis on easing policy may push USD/JPY towards stronger resistance levels, which may reach highs of 141.85, 142.20 and 143.00.
On the other hand, if the Bank of Japan has indicated that it will intervene and monitor the foreign exchange market, the currency pair may be exposed to profitable sales at any time. In general, according to performance over the same timeframe, the current bull trend will not be broken without a move to the 138.80 support level. Aside from monetary policy, the currency pair coincides with the rest of the major US economic news.
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