Last week, the USDJPY currency pair set a new high since mid-November approaching the level of 151. A small correction followed, but the bulls remain confident and accumulate strength while the price fluctuates near the 150 level. The fundamental weakness of the yen against the dollar persists, and the outlook for a reversal of this trend is highly uncertain. The hopes of some market participants for assistance from the Bank of Japan (BOJ) are likely to prove wrong.
According to Reuters analyst Jamie McGeever, unlike in the fall of 2022, now the Japanese regulator will not conduct massive currency interventions to support the yen. This is due to the changing macroeconomic environment. Inflation in Japan exceeded 3% a year and a half ago and has been accelerating its growth until it began to decline gradually towards the 2% target in early 2024.
Morgan Stanley analysts also draw attention to the Japanese economy entering a technical recession. The country's economy is primarily export-oriented, and the weakness of the national currency makes Japanese goods more competitive in the global market. From this point of view, the Japanese government is probably not interested in the yen strengthening and the subsequent decline in the revenues of exporting companies.
In addition, the absence of BOJ interventions is related to the outlook for Fed policy. The US regulator may start easing monetary policy from mid-2024, putting pressure on the dollar in the currency market. In this situation, the yen may rise without BOJ’s interventions. Most traders are not expecting them either, resulting in yen's volatility at 3-month lows.
The current situation can be used to gradually build long positions in USDJPY. If the growth resumes, the first target for the buyers will be the update of the local high at 151. Then the way to the top of last year at 151.9 will be opened.
Consider the following trading strategy:
Buy USDJPY near the level of 150. Take profit – 151. Stop loss – 149.3.
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.
