The USDJPY currency pair fell by more than 12% over the past month and hit the low of 2024 at 141.7 on Monday. At yesterday’s trading session, the quotes rebounded above the level of 146, and now they are trying to consolidate there. The surge of volatility should be slowly replaced by smoother fluctuations, and the dollar is expected to regain at least some of its losses against the sharply strengthened yen. The bulls are quite able to push the price up to 148.5.
The Bank of Japan’s decision to raise the key rate to 0.25% along with a weak report on the US labor market caught traders in the currency market off guard. The buyers of the dollar against the yen had to urgently close their losing positions, provoking an even greater decline in USDJPY. Japan’s regulator intended to support the national currency, but it obviously exceeded its expectations. Now the officials are trying to calm down the investment community by all means.
BOJ Deputy Governor Shinichi Uchida said yesterday that monetary policy will remain unchanged until financial market volatility returns to its normal levels. Traders immediately reacted to these statements, reducing the probability of another key rate hike in the country before the end of 2024 from 60% to 20%. According to Uchida, the BOJ, unlike the EU and the US, can afford more cautious policy changes without causing significant damage to the economy.
Economists and analysts emphasize the negative effect of the strong rise of the yen. The country’s stock market collapsed by 12% in just one day, and exporters are worsening revenue and profit forecasts due to unfavorable rate fluctuations. Charu Chanana, an expert at Saxo Markets, expects USDJPY to stabilize at 145. According to her, Monday’s lows near 141.7 will be updated only in case of a sharp slowdown in US inflation. The report for July will be released on August 14.
The RSI on the daily chart of USDJPY, even despite yesterday’s rebound, remains in the strong oversold zone. There is a high chance of further rebound to the level of 148.5.
Consider the following trading strategy:
Buy USDJPY within the range of 145–146. Take profit – 148.5. Stop loss – 144.
