USD/JPY has become one of the investors’ favorite pairs recently. The series of interest rate hikes for the US dollar and the BoJ’s decision to keep the interest rate at a negative level for a long time has increased the volatility for this pair. However, with both Central Banks not raising the interest rate in June, investors have been anxious about what to expect from the pair after the temporary slip of the Japanese yen. Is it time to buy USD/JPY or short this pair? This article has provided useful insights on this pressing question regarding this popular pair in the forex market today.
Japanese Yen slips as BOJ maintains ultra-loose monetary policy
The Japanese yen slipped to a new low against the US dollar at 140.870 on Friday morning following the Bank of Japan’s decision to keep the interest rate for the yen unchanged at an ultra-loose rate of -0.1%. The low-interest rate for the Japanese yen has made the yen less attractive to investors compared to the US dollar.
The BoJ has pledged to uphold the negative interest rates and to continue buying unlimited amounts of government bonds to keep long-term yields low. This policy has succeeded to a great extent at keeping inflation in check, but it has also made the yen a less attractive currency for forex traders as well as for investors eager to buy stocks in Hong Kong today.
The US dollar, on the other hand, has been gaining strength as the Federal Reserve (Fed) continues to raise interest rates to combat the high inflation rate. The Fed has raised the rates so high, to its current level at 5.25%, and had left the rate untouched during their last session this month; while signaling that two more rate increases might be effected before the end of the year, which will place the interest rate for the US dollar at 5.65% before the year runs out.
What can we expect next for USD/JPY?
The combination of the BoJ’s loose monetary policy and the Fed’s rate tightening cycle is likely to keep the yen under pressure and increase the volatility for USDJPY in the near term. It is possible that the yen could concede more losses, with some analysts predicting that the exchange rate for this pair could reach a low of ¥146 per USD by the end of the year.
Notwithstanding, there are some potential factors that could support the yen in the longer term. The Japanese economy is still growing, and the country has a strong current account surplus. This could help to offset the negative effects of the BoJ’s monetary policy and the Fed’s tightening cycle.
Overall, the outlook for the Japanese yen is mixed. The currency is likely to remain under pressure in the near term, but it could find support in the longer term due to the strength of the Japanese economy.
Important factors to watch out for USDJPY
Below are some important factors that could impact the USD/JPY exchange rate in the coming months:
- The pace of interest rate hikes by the Fed and other central banks.
- The strength of the US and Japanese economies.
- The level of risk appetite in the global financial markets.
The yen is likely to remain under pressure in the near term, as the BoJ’s loose monetary policy and the Fed’s tightening cycle continue to weigh on the currency. However, it is possible that the yen could find support in the longer term, as the Japanese economy is still growing and the country has a strong current account surplus.