empty
16.05.2024 01:31 AM
The Bank of Japan will not allow the yen to weaken. Overview of USD/JPY

The yen was able to strengthen against the dollar after the Bank of Japan published a Summary of Opinions from its monetary policy meeting on April 25 and 26. The summary contained rather aggressive comments on two key topics for the yen: rate hikes and reducing bond buying. The document provided additional confirmation that the BOJ is preparing for a series of rate hikes and will reduce its purchases of long-term Japanese government bonds (JGB). The minutes contain clear hints that the central bank will combat a sustained depreciation in the yen.

While the issue of raising rates is a fairly obvious one, reducing bond purchases is an ambiguous step. The Japanese central government has been running budget deficits since 1993, and the government's funding comes from the constant issuance of bonds that the BOJ buys because they are unappealing to foreign investors due to nearly zero yields. The greater the yield differential between UST and JGB, the weaker the yen becomes.

This image is no longer relevant

If the BOJ is preparing to shift to quantitative tightening, then who will finance the government? Obviously, it is necessary either to achieve a sustainable budget surplus, which is currently impossible, or increase the appeal of bonds for foreign investors, which can only be achieved by raising yields. This, in turn, will again increase the burden on the budget due to higher interest payments.

The likely strategy will be to boost real household incomes, which explains the close attention to forecasts for average wage dynamics. Income growth would help keep inflation around 2%, justifying a rate hike and, consequently, higher bond yields.

Only time will tell whether this is the case or not, but the weak yen phase appears to be coming to an end as the negatives are clearly outnumbering the positives.

The net short JPY position sharply decreased by $2.4 billion to -$10.9 billion over the reporting week. The bearish bias remains intact, but the volume of short positions have been declining for two consecutive weeks, and the price no longer indicates a high probability of further growth in USD/JPY.

This image is no longer relevant

The yen is still trading near the 160 level, but there are lower chances of testing this level again. Objectively, the yen should weaken due to the substantial yield differential, but in the long term, the situation will change in its favor. The question is when these changes will be enough for the yen to start appreciating for objective reasons, rather than through monetary interventions. For speculators, betting on a weaker yen is becoming too risky. Therefore, the most obvious strategy is to sell USD/JPY on attempts to rise, anticipating a global reversal.

Kuvat Raharjo,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

The Whole World is a Stage, and Countries Are Its Actors... (A Limited Decline in Gold and a Rise in Bitcoin Are Possible)

Iran responded to the U.S. with a strike on an American military base in Qatar, thereby demonstrating its resolve for retaliation and confrontation. Markets reacted in a rather peculiar

Pati Gani 09:25 2025-06-24 UTC+2

The Market Has Moved On From the War

Does Iran want war? Judging by the symbolic attack on American bases in Qatar, Tehran does not appear eager to enter into an armed conflict with Washington — which

Marek Petkovich 07:19 2025-06-24 UTC+2

What to Pay Attention to on June 24? A Breakdown of Fundamental Events for Beginners

Very few macroeconomic reports are scheduled for Tuesday, and none are of significant importance. Essentially, the only one worth mentioning is the German Business Climate Index —

Paolo Greco 07:19 2025-06-24 UTC+2

GBP/USD Overview – June 24: No Confirmation of Destruction

The GBP/USD currency pair also traded relatively calmly on Monday. While there were some price "swings," many traders and analysts had expected a much more significant move. The dollar strengthened

Paolo Greco 03:45 2025-06-24 UTC+2

EUR/USD Overview – June 24: Iran Exits Talks and Launches a Retaliatory Strike

The EUR/USD currency pair traded extremely calmly on Monday, considering the intense fundamental backdrop that developed over the weekend. Recall that over the weekend, Donald Trump once again "changed

Paolo Greco 03:45 2025-06-24 UTC+2

Trump Keeps Hitting a Wall

There's a saying: "An irresistible force meets an immovable object." It describes an irreconcilable standoff where neither side is willing to compromise. In my view, Trump's "scythe," with which

Chin Zhao 00:12 2025-06-24 UTC+2

Should We Expect De-escalation in the Middle East?

The market has absorbed the news of U.S. strikes on Iran's nuclear facilities quite resiliently. Why did this happen, and why was the reaction relatively muted? These questions are unlikely

Chin Zhao 00:12 2025-06-24 UTC+2

What Will Powell Say?

Starting June 24, Fed Chair Jerome Powell will address Congress over two days, delivering the semiannual monetary policy report. On Tuesday, he will speak before the Senate Banking Committee

Irina Manzenko 00:12 2025-06-24 UTC+2

The Euro Gets a Knife in the Back

Trouble never comes alone. European industry is beginning to lose steam after rapid growth driven by a front-loaded surge in U.S. imports. The euro area is a net oil importer

Marek Petkovich 00:11 2025-06-24 UTC+2

XAU/USD. Analysis and Forecast

Today, gold is attracting new sellers. Amid a sharp escalation in the conflict between Iran and Israel, the United States conducted airstrikes on three Iranian nuclear facilities in Fordow, Natanz

Irina Yanina 17:59 2025-06-23 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.