The Japanese currency continues to depreciate against the US dollar. The closer the Federal Reserve’s September meeting approaches, the worse the yen’s position becomes. Yesterday, JPY set 2 resistance records at the same time.
The historic low of
USD/JPY accelerated significantly to the top on Tuesday. The quote rose 0.6% and broke a 2
-year high at around 1
3.28.
In addition, yesterday’s decline in the yen brought the yen close to its worst annual performance in its history.
Since the beginning of the year, the yen has depreciated against the dollar by nearly 20%. This is more than in 1979, the year in which the largest annual decline was recorded.
Recall that this year, the cause of the yen’s apparent weakness was the difference in the monetary policy of Japan and the United States.
Currently, Japan’s central bank seems to be marginalized compared to its peers. While other central banks are raising interest rates to curb inflation, this one has been adamant in keeping interest rates at the bottom.
The Bank of Japan’s adaptive tactics are helping to widen the interest rate differential between Japan and the United States, which is taking the most drastic steps to combat inflation.
To contain the price increase, the US central bank has raised interest rates four times this year, doubling 75 basis points.
The market is currently pricing in the possibility that in September, the Fed will record the index’s third-highest gain at 73%.
Traders’ confidence in US politicians’ hawkish determination is supported by upbeat US economic data.
The service sector business activity index for August was released on Tuesday. Last month, the index unexpectedly dropped from its previous value of 56.7 to 56.9.
This was much better than expected, as economists had expected the index to drop to 55.1.
Yesterday’s statistics once again confirmed that the US economy, despite its rapid growth, is still firmly on its feet.
Thus, at its next meeting, the Fed is likely to skip the recession discussion and go hawkish at a similar pace.
This scenario puts an end to the yen. As the gap between Japanese and US interest rates widens, the yen will continue to set anti-dumping records.
Where is the bottom?
This morning USD/JPY is still in a strong uptrend and showing another achievement. The asset broke the level of 1
.
Analysts attribute the increase in the current quote to a strong increase in 10-year US Treasury yields and a dovish statement from the BOJ.
At auction in Tokyo, yields on US Treasuries, inspired by positive US economic data, hit their highest value since mid-June at 3.365%.
Meanwhile, the yield on similar Japanese bonds came in at 0.2
5%. This level is very close to the top of the BOJ’s 0.25% acceptable trading range.
Recall that the central bank of Japan has repeatedly stated that it will not allow interest to exceed this value. Now, as the indicator is about to hit a high, the BOJ has released another statement.
On Wednesday, the BOJ announced that it planned to increase purchases of Japanese government bonds under regular open market operations from 500 billion yen to 550 billion yen.
The move severely crippled Japan’s already weak currency and dimmed its future prospects.
USD/JPY continues to recover also marked by the technical chart.
Currently, the bulls are ignoring the overbought conditions on the RSI and are on their way to the rising resistance line since late April, located in the 1
.60 zone.
If the bears continue to push above this level, the peaks of June and August 1998 will be in focus. We are talking about the milestones of 1
6.80 and 1
7.70 respectively.
Coverage until 09:00 2022-09-12 UTC 2 The Company does not provide investment advice and the analysis performed does not guarantee results.