The USDJPY pair continues its relentless rally. Quotes are currently hovering around 160.50, with no fundamental reasons for a reversal in sight.
The dollar keeps drawing support as a higher-yielding currency. Strong labor market data has contributed to this trend, reinforcing expectations that the Federal Reserve (Fed) could hold interest rates at elevated levels for longer. Another tailwind is the Middle East crisis: escalating tensions in the region continue to push crude prices higher and underpin the dollar’s status as a key safe haven. Meanwhile, inflation remains well above the central bank’s target, which means that the American regulator has little reason to ease monetary policy.
On the yen’s side, everything is not so bright and rather tricky. On the one hand, the Bank of Japan (BoJ) is expected to raise borrowing costs to 1.0% at its June 16 meeting—the highest level since the mid-1990s. In theory, such a rate hike would support the national currency. On the flip side, it appears to be a drop in the ocean, considering a significant policy gap between the BoJ and the Fed. Thus, carry traders continue to bet against the yen.
What’s more concerning is Japan’s extremely high government debt, which exceeds the country’s GDP by more than double. Tighter monetary conditions imply a rise in bond yields. This, in turn, makes it harder to borrow and refinance the nation’s outstanding obligations. Budget spending to service the government debt will rise further, putting additional pressure on the economy and weakening the yen.
The ultimate recommendation is to buy USDJPY at the current price, targeting 162.00 within one month. To mitigate the risk of adverse market movements, place a Stop Loss order just below support, namely at 158.00.
This content is for informational purposes only and is not intended to be investing advice.
