New wave of yen strengthening is expected

07 December 2022 82
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Previously, the forecasts already wrote that the Japanese yen has historically been a safe haven currency to which money flows each time there is uncertainty in the global economy. Knowing that the global economy will be in recession next year, many investors will buy the yen to protect their capital.


Previous forecasts also mentioned that the narrowing of the spread between the U.S. and Japanese rates will be an additional factor in the yen's strengthening.


The situation in the U.S. remains unchanged. The Fed is expected to raise rates next week by 50 bps, not 75 bps as previously planned. The bank will assess the impact of tighter monetary policy on inflation.


At the same time, new details emerged in Japan. Kuroda, governor of the Bank of Japan, emphasized the need to keep interest rates ultra-low. The politician rejected the idea of a possible change in monetary policy, which was recently proposed by one of the board members.


However, there was some news from the other side saying that the Bank of Japan might give up the 10-year bond yield curve control in 2023 already. Such a statement would mean a slowdown of the Japanese “printing press”, causing revaluation of the yen against other currencies. In fact, that would be tightening of the Bank of Japan’s monetary policy. It’s necessary to observe inflation in the country to approve or cancel such a scenario. 


The USD/JPY pair is currently approaching the upper level of the downward trend. This is where the first 0,36 Fibonacci retracement level is placed. Above the trend, there’s a resistance in a form of upward trend that started in spring 2022. After testing this level, the yen might turn down and update the lows of this correction. Such an outcome would prove the strength of the current downward movement. 


Level 132 would be the target. This level has already served several times as both resistance and support for the yen.

Put Stop below the line of long term upward trend, at the level of 140.


A decline of the USD/JPY pair towards the limit of the trend in the medium trend:

Take profit – 132

Stop – 140

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