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Japanese authorities, despite their efforts, are still grappling with the problem USD/JPY The pair’s continued upward trend. Meanwhile, even insurance companies do not believe in today’s trend reversal. Let’s discuss this topic and make a trading plan.
Weekly fundamental forecast for the Japanese Yen
USDJPY rates are returning to the psychologically important 160 level, the government is feeding the markets with verbal interventions, while the extremely slow normalization of monetary policy by the Bank of Japan is dragging down the national currency, keeping it among the vulnerable foreign currencies. The spread in bond yields is so wide that investors cannot start transferring money from North America to Asia, which meant that buying the US dollar at 157.7 was a promising idea.
Even Japanese insurance companies are starting to believe that Tokyo will not be able to reverse the upward trend in the market USD/JPY Husband. The nine largest of them reduced the hedging ratio of foreign securities in their investment portfolios by $1.9 trillion to 47%, a record low. In comparison, the ratio was 63% in March 2020. This happens when the yen weakens or rises only slightly.
Yen performance and hedging ratio
Source: Bloomberg.
Investors are not afraid of the hawkish statements made by the Bank of Japan in the meeting minutes and the acceleration in consumer prices in May. If appropriate, the central bank will raise the overnight interest rate at its next meeting before it is too late, the policy board said.
Inflation rose from 2.2% to 2.5%, and although the actual data was lower than the 2.6% growth expected by Bloomberg experts, the index is above the 2% target for the twenty-fifth month in a row. In theory, this confirms that the Bank of Japan will likely continue its tightening cycle and support the yen. In fact, the Bank of Japan’s slowdown is hurting the national currency, as the interest rate differential with the Federal Reserve remains large, supporting tailwinds for carry traders.
Inflation changes in Japan
Source: Reuters.
It is not surprising that USD/JPY The pair did not show any reaction to the inflammatory speech of Deputy Finance Minister for International Affairs Masato Kanda about the negative impact of excessive currency exchange rate fluctuations on the Japanese economy. Officials do not seem to be afraid of the fact that the United States has put Japan on a watch list to determine whether it is manipulating the currency or not. According to DBS Bank, Tokyo is unlikely to back down because of this. Washington is only concerned about large purchases of foreign currencies that could weaken the local currency, not the other way around.
USD/JPY’s upward trend could be reversed if the US economy continues to slow and the Federal Reserve finally starts talking about cutting the federal funds rate. The efforts made by the Japanese regulatory authority are not enough.
USDJPY Weekly Trading Plan
At the same time, the possibility of currency intervention is increasing as the US dollar approaches the 160 level. Traders should be prepared for a sharp movement. USD/JPY A decrease of 400-500 points, as in April and May. These price drops will provide an opportunity to open buy trades.
USDJPY price chart in real time mode
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