Nov 22, 2022

6 min read

Digital Forex - Recent USD/JPY Price Change and What to Look for

Since the start of 2022, USD/JPY has been trending upward. The lowering of the yen against the US dollar is mainly because of BoJ’s (Bank of Japan) dovish policies causing a wide gap between the US and Japan’s yields.

So, how’s the price currently, and what is to expect for the USD/JPY?

Let’s find out.

In the digital forex market, trading prices of stablecoins can be affected by various factors. The market trend of the underlying fiat currency is an essential factor to consider. 

In our blog, we periodically introduce the price movements of major currencies and discuss policies and economic factors behind them.

What’s going on with USD/JPY?

The lackluster CPI inflation report triggered the dovish repricing of market expectations surrounding the Fed’s rate rise cycle. Following the release on November 10, the yen had its greatest week since 2008, rising over 6% versus the dollar.

However, the yen fell more in the third week of November, as the Bank of Japan is sticking to its ultra-easy monetary policy, contrasting sharply with the Fed and its major peers.

In September and October, Japan spent over $60 billion on interventions in an attempt to lower the rate of losses.

Hawkish Fed

The Fed has gathered the horses and conveyed a hawkish message to the markets since the previous US inflation data sent equities markets soaring and the US currency down.

The yen slid as much as 0.8% versus the US dollar to 139.94 after Fed Governor Christopher Waller was the first to speak, indicating authorities still had some way to go in hiking rates.

On November 17, St. Louis Fed President James Bullard displayed a graph indicating that even the most dovish assumptions would need the central bank’s policy rate to rise to approximately 5%, while tighter assumptions would require it to climb over 7%.

King dollar

Since the Federal Reserve began a historic wave of monetary tightening nine months ago, the US Dollar has surged, squeezing the JPY.

The Japanese yen has been under pressure owing mainly to the BoJ’s significantly different policy from that of the US Federal Reserve.

The broader strength of the dollar has influenced other major currencies, including the pound and the euro.

Japan’s dovish policy

In Japan, inflation continues to rise. Core CPI increased to 3.6% in October, up from 3.0% in September and slightly more than the expectation of 3.5%.

Furthermore, imports in Japan increased by more than half year on year in October, surpassing growth in exports and widening a trade deficit that has severely impacted the yen.

As inflation continues to rise, consumers feel the pain of increased prices. Inflation in Japan has not been this high in 40 years.

Despite increasing inflation and a weak yen, the Bank of Japan is determined to keep its ultra-easy policy in place to help the economy.

The Bank of Japan has kept interest rate forecasts constant and negative territory at minus 0.1 percent. The central bank keeps an eye on foreign developments and is mindful of inflationary pressures, but it feels now is not the time to raise interest rates in Japan.

Instead, monetary policymakers have interfered in currency markets to strengthen the yen. Since September, Japanese officials have intervened many times to support the yen.

The currency plummeted to a 32-year low in October as the gap between the Bank of Japan’s ultra-dovish monetary policy and the Federal Reserve widened.

Outlook for USD/JPY, what to expect?

The outlook for USD/JPY depends on the central banks’ policies. So, we’ll try to decipher how Fed and BoJ’s policies can impact the USD/JPY.

Don’t fight the Fed

The Fed will reduce and maybe cease raising interest rates in 2023. It’s anyone’s guess how soon they’ll be able to do so and how much more economic hardship they’ll cause along the way.

The federal funds rate target range is now 3.75% to 4%, rising from zero to 0.25% at the start of 2022.

Market participants anticipate a 50 basis point (bps) raise at the Fed’s last 2022 meeting in December, if not another 75 bps move.

There are two scenarios to look for going forward.

Over the next six months, inflation begins to fall, and the Fed responds by slowing the pace of rate rises. This would allow tighter policies to influence the economy.

It suggests a weaker dollar, and we can see the USD/JPY fall below the current price. According to Wells Fargo, the United States will enter a recession next year. The bank stated the Fed would decrease interest rates in response in late August, causing the dollar to reverse direction and fall versus the JPY.

However, a soft landing is only achievable if inflation eventually collapses. The most recent CPI data showed a year-over-year headline figure of 7.7%, which was still high but far down from the June peak of 9.1%. The core CPI fell as well. This brings us to our second scenario.

The second scenario is that the Fed will raise interest rates even more if inflation keeps rising. So, this may keep the US dollar bulls hopeful.

In the recently published report, UBS anticipated that the US dollar would peak at the end of the first quarter of 2023. According to ANZ Bank, the Fed’s rapid monetary tightening will cause the greenback to peak in the first half of next year.

Dovishness to continue?

The next meeting of the Bank of Japan will be placed on December 19 and 20, and there may be additional hints as to whether monetary tightening will occur in 2023.

The consensus is that the dovish Bank of Japan Governor, Haruhiko Kuroda, will not be pushed. However, when Governor Kuroda’s tenure expires on April 8, 2023, there will certainly be wild speculation about his replacement and if a less dovish contender emerges.

The Japanese have already spent over $60 billion in FX intervention between the 146 and 151 range in USD/JPY and will most certainly be called upon to take more action if the dollar continues to rise.

The Bank of Japan is only looking to buy time before the Fed cycle flips. Unless we see 6%+ policy rates in the US next year, USD/JPY can dip lower in the second half of the next year.

Digital Forex Pairs Using Stablecoins

GYEN, a JPY stablecoin issued by GMO Trust, is available on Coinbase, Uniswap, and DFX Finance.

Find the trending GYEN pairs here:

・Coinbase: GYEN/USD

・Uniswap : USDC/GYEN, ZUSD/GYEN

・DFX Finance : USDC/GYEN

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