empty
 
 

Forex Analysis & Reviews: Wave your hand to the yen: the dollar is preparing to take off
time 20.09.2022 10:22 AM
time Relevance up to, 25.09.2022 10:10 AM

This image is no longer relevant

This week, traders' nerves are stretched to the limit. Everyone is waiting for the Fed's verdict on interest rates and the next jump in the dollar. According to forecasts, it will grow the most against the yen.

The divergence in the monetary policy of the US Federal Reserve and the Bank of Japan was the main reason for the weakening of the yen this year.

Due to the large difference in interest rates, the JPY has fallen by more than 20% against the dollar since January. This is the strongest annual decline in the Japanese currency in the entire history of observations.

This image is no longer relevant

Nevertheless, many analysts believe that the yen has not yet reached the bottom. Since everything now points to a further increase in monetary divergence, new anti-records are predicted for the yen.

According to experts, the JPY may test another 24-year low against the dollar in the coming days. Two factors will contribute to the sharp fall of the yen.

Firstly, this is the fifth increase in interest rates in America this year. And secondly, the BOJ's confirmation of its depth of strategy.

The degree of nervousness is increased by the fact that the Fed and the BOJ will announce their decisions on interest rates with a difference of only a few hours.

In light of the latest US inflation data, which turned out to be worse than forecasts, the market expects the Fed to raise the indicator by 75 or 100 bps.

Such a hawkish scenario can provide a powerful momentum for the dollar and a strong tailwind for the USD/JPY pair. And the speech of the head of the BOJ will disperse the asset even more.

Goldman Sachs analysts are confident that this week BOJ Governor Haruhiko Kuroda will again leave all the parameters of the monetary policy unchanged: yield curve control, asset purchase program and interest rate recommendations.

According to experts, the BOJ is unlikely to get off its dovish route, even despite signs of increased price pressure.

Statistics on inflation in Japan for August were released this morning. As the report showed, the core consumer price index exceeded the growth forecast on an annualized basis and reached 2.8%.

Thus, inflation in the country exceeded the BOJ's target, which is at the level of 2%, for the past five consecutive months.

This significantly increases concerns that the price pressure may last much longer than the BOJ expects. But it is not worth speculating about the possible capitulation of the BOJ yet.

The news about the acceleration of inflation on the eve of the next meeting of the Japanese central bank really puts Kuroda in a difficult position.

He will have to try hard to give a logical explanation for the need to continue monetary incentives when price growth has significantly overtaken the 2% target.

However, it is unlikely that the current inflation, which remains relatively low compared to other countries, will force the head of the BOJ to change shoes abruptly.

Earlier, Kuroda has repeatedly stated that the central bank will keep interest rates at extremely low levels until solid wage growth makes inflation more stable.

The firm determination of Japanese politicians to adhere to the dovish strategy is also evidenced by today's decision of the government.

On Tuesday, Japan's finance ministry said it would spend 3.48 trillion yen ($24 billion) from budget reserves to cope with the continued price increases.

The decision was made at a meeting of the cabinet of Prime Minister Fumio Kishida, whose approval rating has recently dropped significantly.

In order to regain the favor of the Japanese suffering from the rising cost of living, the official is ready to provide a new package of financial assistance, i.e. to eliminate the symptom, not the cause of the disease.

As you can see, Japan is not going to deploy an anti-inflationary company yet, as other countries do. However, the status of an outsider does not bode well for its national currency.

The US Fed is not the only one who is going to raise interest rates this week, but also the Bank of England and the Swiss National Bank. This will further aggravate the situation of the yen, analysts believe.

But the main beneficiary of the isolated BOJ position will still be the USD/JPY pair. According to forecasts, it will break through the key threshold of 145 if the Fed's actions turn out to be even more hawkish this time.

lena Ivannitskaya,
Analytical expert of InstaForex
© 2007-2022
Benefit from analysts’ recommendations right now
Top up trading account
Open trading account

InstaForex analytical reviews will make you fully aware of market trends! Being an InstaForex client, you are provided with a large number of free services for efficient trading.

  • Trade Wise, Win Device
    Top up your account with at least $500, sign up for the contest, and get a chance to win mobile devices.
    JOIN CONTEST
  • Ferrari from InstaForex
    Top up your account with at least $1,000
    join the contest and win Ferrari
    F8 Tributo
    JOIN CONTEST
  • Chancy Deposit
    Deposit your account with $3,000 and win $1,000
    JOIN CONTEST
  • 100% Bonus
    Your unique opportunity to get a 100% bonus on your deposit
    GET BONUS
  • 55% Bonus
    Apply for a 55% bonus on your every deposit
    GET BONUS
  • 30% Bonus
    Receive a 30% bonus every time you top up your account
    GET BONUS

Recommended Stories

Commodity market encouraged by China easing quarantine measures

Oil prices entered a bullish correction on Thursday, all thanks to the news that China will finally lift pandemic restrictions and, perhaps, healthy growth in demand for energy resources will

Natalia Andreeva 22:49 2022-12-01 UTC+2

The "flying" dollar: the sound of the fall. The Fed is on the defensive

By the end of the week, the greenback surrendered the lion's share of its positions, unable to withstand the onslaught of the Federal Reserve, which is set to further tighten

Larisa Kolesnikova 08:07 2022-12-01 UTC+2

USD/JPY: that's it, no movie!

Federal Reserve Chairman Jerome Powell's dovish speech pulled down the dollar. Yesterday, the U.S. currency experienced a resounding sell-off on all fronts, but saw the biggest loss against

Аlena Ivannitskaya 07:53 2022-12-01 UTC+2

US stock market closes higher, Dow Jones gains 2.18%

At the close of the New York Stock Exchange, the Dow Jones rose 2.18% to a 6-month high, the S&P 500 rose 3.09% and the NASDAQ Composite index rose 4.41%

Thomas Frank 03:40 2022-12-01 UTC+2

European stocks rise on strong eurozone data

Following Wednesday's results, broad-based gains saw the pan-European index rise after the release of new statistics on the eurozone. Thus, at the time of writing, the pan-European index Stoxx

Irina Maksimova 23:00 2022-11-30 UTC+2

EUR/USD. Inflation whispers, the ECB's rat race

The euro is struggling to develop a rally despite the weakness of the U.S. currency. Growth is limited by incoming data on the euro bloc, indicating that the ECB will

Anna Zotova 23:00 2022-11-30 UTC+2

USD/JPY: calm before the storm

The dollar-yen pair is passing the time for the second straight session in anticipation of a strong impulse. It can happen right now. The Fed chief's speech should persuade

Аlena Ivannitskaya 08:09 2022-11-30 UTC+2

The pound is afraid of drowning, but it aims to move up and continues its journey

The British currency is experiencing notable volatility this week, moving back and forth - from a tangible rise to a moderate decline. According to analysts, sterling has a chance

Larisa Kolesnikova 07:58 2022-11-30 UTC+2

US stock market closed mixed, Dow Jones up 0.01%

The US stock market ended trading on Tuesday mixed due to the strengthening of the sectors of oil and gas, finance and raw materials. The market demonstrates against the backdrop

Thomas Frank 03:43 2022-11-30 UTC+2

Bitcoin reacts to news from China

Bitcoin started Tuesday morning by falling, but afterwards it grew. At the time of writing, the coin was trading at $16,365. According to cryptocurrency price tracking website CoinMarketCap, Bitcoin reached

Irina Maksimova 22:50 2022-11-29 UTC+2
Can't speak right now?
Ask your question in the chat.