Yen Slumps as BOJ Raises Rates, Dollar Surges on Fed Expectations

The Japanese yen experienced significant depreciation against other currencies during Tuesday and Wednesday. This depreciation followed the Bank of Japan's (BOJ) decision to raise interest rates, which was largely overshadowed by the central bank's reaffirmation of its dovish stance for the near future. Governor Kazuo Ueda emphasized the BOJ's commitment to maintaining steady purchases of Japanese government bonds to support the country's economy.

The anticipation of a Federal Reserve meeting also played a role in the yen's losses, with traders favoring the dollar amid fears that the Fed might adopt a more hawkish stance than anticipated. Analysts highlighted that the Fed's actions and US interest rates are the primary factors influencing the yen's performance.

The BOJ's decision to raise interest rates for the first time in 17 years signaled the end of nearly a decade of ultra-loose monetary policy. Despite this shift, the central bank indicated that monetary conditions in Japan would remain accommodative for the time being, citing some weaknesses in the economy but anticipating increased consumption due to rising wages.

In addition to raising interest rates, the BOJ announced cuts to the maximum limit of its purchases of Japanese government bonds, signaling a departure from its radical stimulus policies. These changes are aimed at addressing concerns about market liquidity and the central bank's dominance in the bond market.

The US dollar witnessed increased demand on Tuesday, reaching nearly two-week highs due to resilient US inflation data. This data prompted traders to revise their expectations regarding the timing and extent of Federal Reserve rate cuts for the year.

Recent robust US economic indicators, including resilient inflation and a sharp rebound in single-family homebuilding, have bolstered the dollar. Despite challenges posed by higher mortgage rates, the housing market remains robust due to a persistent shortage of homes for sale. Anticipation of interest rate cuts by the Federal Reserve later in the year is expected to further stimulate economic growth, particularly in the housing sector.

Citi analysts observed that while the Bank of Japan's recent decisions had potential long-term benefits for the yen, the currency faces near-term vulnerability. They noted that the BOJ might signal the possibility of further rate hikes, but the FX market could interpret this as a sign of the BOJ's limited ability to counter yen depreciation. Citi analysts forecasted USD/JPY to potentially rise to 152, with a possibility of intervention by the Japanese government beyond that point. They emphasized the significance of US interest rates in driving USD/JPY, foreseeing the pair potentially falling to 140 or lower by the end of 2024.

Data for Technical Analysis (5H) CFD USD/JPY

Resistance : 151.32, 151.45, 151.67

Support : 150.88, 150.75, 150.53

5H Outlook 

Source: Investing.com

Buy/Long 1 If the support at the price range 150.38 – 150.88 is touched, but the support at 150.88 cannot be broken, the TP may be set around 151.43 and the SL around 150.13, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 151.32 – 151.82, TP may be set around 152.00 and SL around 150.63, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 151.32 – 151.82 is touched, but the resistance at 151.32 cannot be broken, the TP may be set around 150.86 and the SL around 152.07, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 150.38 – 150.88, TP may be set around 150.29 and SL around 151.57, or up to the risk appetite.       

Pivot Points Mar 20, 2024 03:06AM GMT