At the beginning of the current week the USDJPY currency pair showed a sharp rebound from 4-month lows. Quotes quickly made their way from the level of 141 to 145, but this is where the strength of the bulls began to run out. Perhaps, many traders decided to take profits on long positions, not expecting further price growth. By the current moment dollar against the yen buyers have already lost half of their recent achievements, and the situation on the currency market is still not in their favor.
The short-term collapse of the yen was caused by the announcement of the results of the Bank of Japan's last meeting in 2023. Market participants did not expect the abolition of the negative key rate, but hoped for more certainty regarding the timing of such a measure taken by the regulator. However, the Bank of Japan Governor Kazuo Ueda did not clarify the issue, pointing out the lack of economic data. The situation will not change significantly until the next meeting of the regulator on January 23, so analysts make the main bet for April.
While the Bank of Japan remains wary of monetary policy tightening, the government finally decided to take such measures in relation to the country's budget. For the next fiscal year, the size of Japan's budget will be reduced from 114.4 to 112.1 trillion yen. It is important to note that the forecast for the volume of bond emissions has been reduced. According to the draft budget, the size of debt emissions should decrease from 35.6 to 34.9 trillion yen.
For the first time in 12 years, the Japanese government is going to reduce the volume of the budget in an attempt to stop or at least slow down the growth of the country's debt burden. Now the country's debt obligations are already twice the size of GDP, and the authorities have set a goal to overcome the negative trend by March 2026. A more restrained growth of money supply will support the yen exchange rate.
The short-term target of USDJPY sellers is to return to the level of 142. The downward movement may accelerate in case of positive data on inflation and negative data on U.S. GDP. The statistics will be published on Thursday and Friday.
Consider the following trading strategy:
Sell USDJPY at the current price. Take profit - 142. Stop loss - 144.5.
Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion
This content is for informational purposes only and is not intended to be investing advice.
