Fluctuations in USD/JPY: A Monthly Overview

GMO-Z.com Trust Company
GMO-Z.com Trust Company
6 min readMay 23, 2024

The USD/JPY exchange rate has been volatile for the month, and policy and economic changes in Japan and the US have characterized it. These led to many ups and downs for the pair. At the same time, it was an essential month as Japan intervened in the markets to try and strengthen the yen.

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Recent Fluctuations in USD/JPY

USD/JPY for the last 30 days. Source: TradingView

USD/JPY started bullish and rose past the $160 mark. However, it then had a sharp decline that reversed the early gains. Bullish momentum is back, showing no clear direction in the past month.

Factors Behind the USD/JPY Decline

The Bank of Japan intervened to support the yen, leading to a drop in USD/JPY. Before the intervention, the USD/JPY was moving upwards, causing market concerns about a potential intervention.

Japanese authorities issued many statements warning of necessary action to stem the yen’s decline. Still, the currency slid until it hit $160, a line in the sand for Japanese officials. This triggered a sharp decline on the 29th of April when markets suspected that the Bank of Japan had intervened by buying the yen and selling the dollar.

However, officials kept silent and refrained from admitting the intervention. The USD/JPY exchange rate recovered the next day. Still, it made another sharp move lower on the 1st of May, when markets suspected another intervention exercise in Japan.

After so much jawboning, officials in Japan finally acted, leading to a drop from around $160 to $152. However, as history has shown, the impacts of intervention in the markets are usually temporary, especially if underlying fundamentals remain the same. Although the BoJ succeeded in strengthening the yen, it only took a while before it resumed its decline.

Another reason for the recent decline in the USD/JPY pair was the downbeat US employment report that came soon after the interventions. Data revealed a smaller increase in employment in April, showing a cooling labor market. As a result, there was more confidence that the Fed would start cutting interest rates in September. This led to a sharp decline in the dollar.

Finally, USD/JPY fell when the US released its consumer inflation report. Inflation in the country fell in April, raising bets that the Fed would implement at least two rate cuts this year. This also significantly weighed on the dollar.

Causes of the USD/JPY Surge

The recent rise in USD/JPY came as investors recovered from the set of BoJ interventions. Although US employment data revealed cracks in the labor market, policymakers warned that it was too early to say the sector was on a downtrend. Therefore, after the initial decline, USD/JPY rose.

At the same time, there was anticipation in the markets ahead of US inflation data. After three months of higher-than-expected readings, market participants positioned themselves for another upside surprise. However, this was different. Inflation fell but did not reverse the bullish move in the pair at the time.

Notably, Fed policymakers remained cautious despite the decline, saying that inflation was still not where it should be. Moreover, it would take more downbeat reports to confirm that the downtrend was back.

Latest policy and economic changes

Economic and policy changes in Japan and the US have affected the USD/JPY exchange rate in the past month.

Economic Indicators from the US

On the economic side, the US has released several major reports, including GDP, employment, inflation and retail sales. A sharp drop in GDP dropped from 3.4% to 1.6% in Q1. This indicated a slowdown in the economy amid high interest rates.

At the same time, the employment report showed weakness in the labor market. Jobs in the economy fell from a previous 315K to 175K, well below economists’ forecasts. Meanwhile, the unemployment rate increased from 3.8% to 3.9%, showing more people were jobless.

Next came the inflation report, which showed a drop from 0.4% to 0.3% in April. On an annual basis, inflation fell from 3.5% to 3.4%. This year, itt was the first declinr, raising confidence in the markets that the Fed’s next move would be a rate cut.

Finally, the retail sales report showed no growth in April compared to a 0.7% jump in the previous month. Reports indicated that demand in the US economy was weak, causing expectations of a rate cut by the Fed and a negative impact on USD/JPY.

On the policy side, the Federal Reserve held its meeting on May 1st, where it held rates. Policymakers maintained that inflation would eventually reach the central bank’s target.

Economic Developments in Japan

Meanwhile, in Japan, the GDP report revealed a deeper contraction in Q1, complicating the outlook for Bank of Japan rate hikes. GDP fell from a previous 0.0% to -0.5%. Weak economic growth limits how far the BoJ can tighten policy. As a result, the report led to a decline in the yen and a rise in USD/JPY.

On policy, the Bank of Japan held rates on 26th April after hiking for the first time in March. Although the central bank signaled more rate hikes in the future, there was no clear guidance on the timing. This disappointed investors because it meant that the gap in interest rates between Japan and the US would remain longer, weakening the yen.

Future Outlook for USD/JPY

In the coming month, investors will wait to see if the Bank of Japan intervenes again to keep the USD/JPY exchange rate below $160. If they do, the price might consolidate below this significant level for a while.

At the same time, investors will monitor the tone of policymakers in Japan and the US, who might give clues on future policy moves. After the recent data from the US, Fed policymakers might slowly shift to a more dovish tone, which would weaken the dollar.

Meanwhile, the BoJ has threatened to use monetary policy to support the yen. More talk on a possible rate hike would strengthen the yen. Moreover, there is growing pressure for the central bank to hike interest rates and support consumer spending. Therefore, USD/JPY might fall in the coming months.

Technical Analysis of USD/JPY

Technical Analysis of USD/JPY

On the technical side, the outlook remains bullish as the price sits above the 22-SMA and its bullish trendline. At the same time, the RSI trades in the bullish territory above 50. However, bears have shown strength, as seen in the large bearish candles.

Moreover, the wick at the 160.00 level shows a rejection of higher prices. Therefore, the price has created a strong resistance at 160.00. If bears return, they might challenge the support trendline. A break below the trendline would confirm a reversal in the bullish trend.

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GMO-Z.com Trust Company
GMO-Z.com Trust Company

Connecting traditional finance and blockchain technology for everyone. We issue GYEN, the first regulated JPY stablecoin, and ZUSD, our trusted USD stablecoin.