The USDJPY pair has been experiencing a downward trend, slipping below 153 on Friday morning to reach a three-week low. This decline comes after the currency lost over 4.5% from a peak of 160.2 at the beginning of the trading week. Various factors contribute to this downward movement, including a widening interest rate differential and shrinking trade surplus, along with currency interventions by the Japanese Ministry of Finance.
It is crucial to analyze when these interventions by the Japanese Ministry of Finance will come to a halt. The growth impulses driving the yen’s rise are showing signs of diminishing. In recent months, there have been two significant declines in USDJPY, marking speculation regarding active monetary tightening by the Bank of Japan. However, the authorities seem hesitant to deplete foreign exchange reserves quickly, opting for more measured interventions at times of low FX liquidity for maximum impact.
The Bank of Japan’s slow pace in tightening monetary policy also plays a role in the current situation. Despite expectations for further tightening after a rate hike in March, no additional steps have been taken. This cautious approach reflects a pattern of false hope from Japan’s monetary policy in recent years, focusing on slowing the yen’s decline rather than pushing for growth.
As USDJPY approaches the 50-week moving average, interest in yen appreciation may subside, as seen in past trends. This average is expected to be around 150 by year-end, currently passing through 147. While a decline towards 122, where the pair has previously peaked in 2007 and 2015, is seen as a more ambitious target, it cannot be ruled out entirely.
The future trajectory of USDJPY remains uncertain, with various factors influencing its downward trend. From diminishing growth impulses to cautious monetary policy, the landscape is complex. As investors and analysts monitor the market closely, it will be interesting to see how these dynamics play out in the coming months.