Key Points:
- Japanese Yen Hits Historic Low: Plunged below 160.00 against USD, weakest since 1986, amid BoJ’s unchanged rate policy.
- Technical Indicators Signal: USD/JPY’s extreme overbought condition suggests a potential for a near-term correction.
On Monday, the Japanese yen plunged below the significant threshold of 160.00 against the US dollar, marking its lowest level since October 1986. This steep depreciation comes amid the Bank of Japan’s (BoJ) ongoing cautious policy stance, characterised by an uncertain interest rate outlook and the central bank’s decision on Friday to keep short-term interest rates unchanged. A holiday in Japan further impacted this historical low, contributing to thinner market liquidity and affecting currency volatility.
USD/JPY Surges Past 159, Potential Correction Ahead
In forex trading, technical indicators provide a beacon for navigating market trends and potential reversals. The USD/JPY pair exhibited technical cautiousness, with a notable breakout above 159.00. However, traders closely monitor critical support levels: 158.35-158.30 and a stronger base around 158.00, with breakpoint resistance at 157.00. The Relative Strength Index (RSI) signals that the pair is extremely overbought, suggesting the recent surge in value may be poised for a correction.
Japan’s Inflation Aligns with BoJ’s 2% Target
Recent data releases have also influenced market sentiment. The Tokyo Consumer Price Index, released on Friday, indicated that inflation in Japan is cooling, aligning with the BoJ’s inflation outlook, which remains on track to meet its 2% target. Despite this, BoJ Governor Kazuo Ueda hinted at the readiness to hike rates later this year. However, he ruled out a full-scale reduction in bond purchases, adding a layer of complexity to future monetary policy directions.
Equity Gains Limit Japanese Yen’s Upside, BoJ on Hold
The broader equity markets have maintained a generally positive tone, which has capped any significant gains for the yen. Market analysts suggest that the BoJ’s reluctance towards aggressive policy tightening and the persisting wide rate differential between Japan and the US will likely sustain pressure on the yen. This context warrants caution for traders considering positions in the yen ahead of the pivotal Federal Open Market Committee (FOMC) meeting set to begin on Tuesday, as further clarity on US monetary policy could influence JPY movements.
Concerns Rise Over BOJ’s Intervention as Japanese Yen Hits 160
The yen crossing the critical 160.00 mark raises concerns that Japanese authorities may intervene to stabilise the currency. Such measures would prevent excessive volatility and potential economic disruptions from an overly weak yen. The market is preparing for these developments. Investors and traders should stay alert. This is particularly important with the upcoming FOMC meeting. Also, potential changes in global interest rate policies could impact the complex dynamics of the USD/JPY currency pair.
