Japanese authorities in no hurry to curb yen depreciation

04 April 2024 83
Japanese authorities in no hurry to curb yen depreciation

USDJPY continues to hover near the 152 level, which is the highest since the beginning of the 21st century. The likelihood of currency intervention by the Bank of Japan is keeping traders from buying further, but there are not a noticeably large number of those willing to close existing long positions. With the Japanese authorities still in no hurry to intervene, forex market participants may still decide to create another wave of USDJPY growth.

 

Most likely, the lack of currency intervention is due to a more gradual weakening of the yen than its sharp decline in the fall of 2022. This opinion was expressed by Hiroshi Watanabe, who previously supervised currency policy in the Japanese Ministry of Finance. According to his estimates, the regulator will take action at the earliest when the dollar exchange rate against the Japanese currency will reach 155. Watanabe considers this level to be psychologically important, and breaking it will put the Bank of Japan under great pressure from the media and the public.

 

Watanabe also drew attention to the actions of Japanese exporters. When they receive the proceeds from foreign buyers, they do not repatriate the funds but invest them in foreign assets. This behavior by corporate executives has been going on for years and is linked to low interest rates in Japan. The tightening of monetary policy in March did not change the situation significantly; the interest rate differential between Japan and Western countries is still too large.

 

A further increase in the key interest rate could support the yen, but this is unlikely to happen before the fall. This was stated in an interview with Bloomberg by Makoto Sakurai, a former board member of the Bank of Japan. In his view, July is too early for further policy tightening, as officials tend to be very cautious. A summer rate hike is only possible if the yen falls to the 160 per dollar level.

 

The weekly chart of the USDJPY shows that the RSI indicator is not overbought, indicating that the pair may continue to rise. A consolidation above the 152 level will open the way to the next target at 154.

 


Consider the following trading strategy:


Buy USDJPY at the current price. Take profit - 154. Stop loss - 149.

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

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