The AUDJPY pair, as well as other currency pairs with the yen, has experienced a massive collapse this week. After the Bank of Japan’s (BOJ’s) decision to raise the yield cap on 10-year government bonds from 0.25% to 0.5%, all yen sellers were forced to close their positions immediately. As a result, AUDJPY dropped by 5% in just one day on December 20. Future moves of the Japanese financial regulator are unlikely to cause the same reaction of the currency market, but the yen’s strengthening trend has every chance to take root.
The BOJ’s current actions were the first, but not last, move towards the stabilization of the country’s monetary policy. Especially as Japan’s inflation doesn’t seem to slow down, unlike rising prices in Western countries. Today’s data for November showed that inflation reached the level of 3.7%, thereby renewing the record of 1981. It’s not so bad, especially in comparison with double-digit rates in the UK or the EU, but the trend is more important than a single number.
Price growth has been speeding up for almost a year, while core inflation has exceeded the BOJ’s target of 2% for eight months in a row. Some analysts, like Goldman Sachs, now predict that the negative key rate of -0.1% will be canceled at January’s meeting of the Japanese regulator. It sounds too radical, but Haruhiko Kuroda has already shown that he’s capable of making unexpected moves and still has enough time for other surprises before his term ends in April.
The Australian currency’s prospects look way worse compared to the yen, given that the interest rate hike cycle in Australia is just about to end. Therefore, the downtrend of AUDJPY might prevail throughout the following year.
The first target of the AUDJPY decline will be the support level of 88, then there is a potential movement down to 86, but it might be a more distant outlook.
The following trading strategies may be offered:
Sell AUDJPY for the current price. Take profit 1 – 88. Take profit 2 – 87,3. Stop loss – 89,2.
Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion.