The Japanese Yen (JPY) trades in a range against the US Dollar (USD) on Tuesday after the Minneapolis Federal Reserve President Neel Kashkari was reported as saying he believed the Fed had more work to do to bring down inflation. His comments helped lift the US Dollar.
USD/JPY – the number of Yen that one Dollar buys – continues higher on Tuesday. The recovery means the short-term trend is starting to look range bound, with price sandwiched between the 151.70 highs of October 30 and the key 148.80 lows. As such it will probably continue yo-yoing until a break through on either side confirms directionality.
During Tuesday’s action, the pair has returned to the lower channel line of the rising channel it has been in since the summer. It is now meeting resistance at the channel line where it once met support. There are no signs of a reversal back down yet however.
On the daily chart used to assess the medium-term outlook, the pair is still in an uptrend. On this chart too, the 148.80 low holds the key. Ultimately, as the saying goes, the “trend is your friend” and as long as 148.80 remains intact the medium-term trend remains firmly bullish.
If the 151.93 level from October 2022 – which marked a 32-year-high – is breached, the uptrend will gain reconfirmation, with next targets expected to be met at the round numbers – 153.00, 154.00, 155.00 etc.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation.
The BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against the Japanese Yen.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.