Japanese yen might weaken again

07 July 2023 143
Japanese yen might weaken again

The Japanese yen has reached its last growth targets. The USD/JPY currency pair hit a significant support level. It is quite possible that there is a reversal point now, as markets are still set for monetary policy tightening.

This week Bloomberg published a forecast by a well-known Japanese economist.

According to Eisuke Sakakibara, the yen could fall below more than 30-year lows, which it already reached last year amid growing monetary policy divergence between Japan and the United States.

Sakakibara was Japan’s Vice Minister of Finance in 1997-1999. He said the yen might weaken by more than 10% from current levels, as the Bank of Japan (BOJ) sticks to ultra-loose policy while the Federal Reserve (Fed) raises interest rates.

Last year the economist correctly predicted the yen’s fall to 150 against the dollar. Now the Japanese currency might continue its decline until the BOJ tightens monetary policy. It could be a simultaneous abandonment of negative rates or bond yield controls at the end of next year.

Market participants have concerns about possible interest rate hikes in the U.S. and expect the country's nonfarm payrolls data.

ADP Nonfarm Employment Change data for June were stronger than expected.

A resilient labor market fueled concerns about the Fed's monetary policy tightening. According to market participants, the probability of a 25-basis-point rate hike in late July is now close to 92%. The Fed’s monetary policy tightening will increase the divergence between U.S. and Japanese central bank policies. This fact is negative for the Japanese yen.

According to the technical analysis, the USD/JPY currency pair is at the lower limit of the uptrend. This trend is relevant for over two months, therefore the probability of a rebound from this level is high.

The growth target will be the lower limit of the rectangle, which corresponds to the price of 144. A Stop-loss will be set at breaking the support down at 142.6.

USD/JPY is likely to rise:

Take profit – 144.0

Stop-loss – 142.6

This content is for informational purposes only and is not intended to be investing advice.

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