The higher the USDJPY quotes were rising, the higher the risk of monetary interventions was. However, the government did with verbal ones. The yen feels better, but has it saved itself once and for all? Let’s discuss it and make a trading plan.
Weekly fundamental forecast for yen
Kazuo Ueda’s single hint at policy normalization was enough to save the yen. The BoJ Governor said the bank would have enough clues by the end of the year to understand if the yield curve control policy should be abandoned. The statement turned up so unexpected that the USDJPY quotes collapsed below 146. However, Societe Generale believes the pair can afford only a short-time break amid Tokyo’s support. The environment remains unfavorable to the yen.
Once the USD hit its 10-month high, bullish prospects for the dollar prevailed. The best analyst at JP Morgan predicts that the USDJPY will reach 152 in 2023 and 155 in 2024, as even the BoJ’s giving up the yield curve control policy won’t help the bears. Suntory Holdings forecasts the level of 170, last seen in 1986. The US and Japan’s rates differential is too big; its widening has turned the yen into the main outsider among G10 currencies.
Evolution of Fed’s and Japan’s rates
The pair’s drastic rally became the government’s concern. Masato Kanda, vice finance minister for international affairs, said excessive currency moves harmed the economy, and the government would take necessary action if they continued. Credit Agricole thinks that Tokyo strengthened verbal defense, jumping from “level four on a verbal intervention scale straight to levels six or seven” as the USDJPY had soared from 146 to 148. The 200-point move could be the red line: having crossed it, the pair faced the risk of interventions.
It’s worth mentioning that Kazuo Ueda’s speech was considered a way to throw a lifebuoy to the yen. The Bank of Japan considers both inflation and wages; the fact that real wages have slowed for 16 consecutive months decreases the chance of abandoning the yield curve control.
However, experts feel optimistic about the yen. Those surveyed by Reuters forecast the USDJPY will reach 132 in 12 months. Bloomberg’s consensus forecast is 140 and 129 for the end of 2023 and 2024, based on the assumption that the Fed has finished tightening and the USD will weaken.
That idea looks doubtful, though. The growth of oil prices increases the chance of an inflationary boost in the US. Consumer prices are expected to rise from 3.2% to 3.6%, increasing the chance of a fed funds rate hike in December to 43%.
Oil and US inflation dynamics
Source: Financial Times.
Trading plan for the USDJPY
Even if the strategy of selling the USDJPY from 147.1 is working, the yen’s success won’t last long. The BoJ will hardly rule out yield curve control, and the USD risks growing amid strong data on US inflation. So, use pullbacks from levels 145.9, 145.45, and 145.1 to go long.
Price chart of USDJPY in real time mode
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