Monthly USD/JPY Market Analysis: What To Watch For
On April 10, Kazuo Ueda took charge as the new BOJ Governor. With all the chaos around the USD, the news had little effect on the USD/JPY. It’s an all-greenback show.
So, what does the short-term future look like for the USD/JPY?
Here we’ll find out why USD/JPY has been a dollar story and can the BOJ policies move the needle.
In the digital forex market, stablecoin prices can be influenced by various factors, with the market trend of the underlying fiat currency being a critical consideration. In our blog, we track and update major currency price movements while delving into the policies and economic factors that propel them.What’s going on with USD/JPY?
After dropping to 130.89 on April 5, the USD/JPY has recovered and is trading at 134.04. The decline resulted from banking turmoil in the US, where traders flocked to the safe-haven JPY.
But now, as the banking stress is easing off and Ueda’s unchanged policies, for now, are keeping the bulls excited.
Not too fast
Since taking office, there has been speculation that Ueda will reverse his predecessor’s policies. During Kuroda’s tenure, the BOJ implemented a yield-curve control policy (YCC), which involved buying Japanese government bonds (JGBs) to pursue low long-term interest rates.
This approach and its side effects have come under increasing scrutiny as it is not connected with other central banks that have increased rates over the past year to combat inflation.
Since taking over a week ago, Ueda has hinted that the huge stimulus implemented by his dovish predecessor will ultimately be taken down.
However, talks about when and how to exit the ultra-loose policy will take time, giving Ueda every motive to reassure the world that any change will be gradual.
The no-changed policy from the new governor sent the JPY down against the dollar and hasn’t been able to recover since then.
Rising yields
Japan’s 10-year bond rates have risen, indicating that traders are protecting themselves against probable YCC revisions even though Ueda might still maintain the status quo for some time.
As a result of the financial crises in the US and Europe, there has been a noticeable lessening of upward yield pressures in other large economies, which stands in contrast to this.
No crises?
Chaos in global financial markets caused by the failure of the US Silicon Valley Bank and the sale of Credit Suisse to UBS further complicated the work of the new BOJ governor.
While Ueda stated that the impact on Japan’s economy and financial system was modest, he cautioned that “the uncertainty has not gone away completely.”
Japan’s banks have remained somewhat stable in the midst of recent financial instability, and regulatory or government-level changes are still a big factor. Regional banks in Japan must deal with the Bank of Japan’s ultralow interest rate policy.
Also, global economic worries and shaky trust in the financial sector have created uncertainty.
What’s up with USD?
The dollar suffered heavy losses in March and seemed to continue the trend in April. The immediate support for the US financial sector has caused the dollar to fall, as investors have shifted their emphasis to Feds easing.
All the major currencies have risen against the dollar, with EUR/USD hitting 1.10 and GBP/USD hitting the 1.25 level.
However, we are talking about USD/JPY, which has a different scenario. The decline in the dollar may have to hold for a while. The road to a lower dollar will be rocky, and it may quickly derail if financial stress returns or other difficulties surface, such as a US debt ceiling.
The issue is whether the dollar can move on from the financial crisis and concentrate on the upcoming Fed easing cycle.
Sticky inflation
The Feds easing cycle depends on inflation, which is slightly cooling off. According to Bureau of Labor Statistics data released on April 12, US headline inflation decreased more than forecast in March to 5% from 6% in February, reaching its lowest level over two years.
While the numbers were positive, core inflation remains at 5.6%, scarcely moving in the past four months. The Federal Reserve is concerned about the slow rate of deflation.
The miseries add up
The Fed’s most recent projections, issued just after Silicon Valley Bank’s and Signature Bank’s March failures, show that officials may raise rates another quarter-point this year to just above 5%.
The minutes from that meeting, which were disclosed on April 12, indicated that policymakers intended to keep the door open regarding future interest rate rises.
They saw bank failures as a huge wild card in the economic picture, and Fed officials predicted that the US economy would enter a mild recession later this year due to the chaos.
Since then, central bankers have remained unsure about the course of interest rate rises.
Markets now estimate that the Federal Reserve will hike interest rates by 25 basis points next month, up from approximately a 69% likelihood last week.
And it appears probable that the Fed will deliver one more 25bp boost in May before hitting the stop button to assess the implications of tighter lending conditions prompted by the March financial chaos.
With the May 25bp raise already priced in, the dollar may appreciate as much against the JPY.
What to look for around USD/JPY?
There are two important events for USD/JPY in the short term. One is Ueda’s first policy meeting on April 27–28, and the other is the Fed interest rate decision on May 2.
The no-change stance will remain at the Ueda’s first meeting and won’t move the needle too much for the pair.
The Feds rate hike can excite the bulls, and we may see a higher dollar.
However, when we talk about the second quarter of 2023, the USD/JPY can dip lower. This depends on the Fed’s easing cycle and the US financial system’s vulnerability. There is also the wild card possibility of a change in BOJ policy.
Some economists predict that the Bank of Japan can shorten its yield curve goal to 5-year JGB rates at its meeting in June. This would cause the 10-year JGB rates to skyrocket, and as a result, the JPY can accelerate against the USD.
Digital Forex Pairs Using Stablecoins
GYEN, a JPY stablecoin, and ZUSD, a USD stablecoin issued by GMO Trust, are now available on leading exchanges.
Find trending pairs of GYEN and ZUSD here:
Coinbase: GYEN/USD
Uniswap: USDC/GYEN, ZUSD/GYEN, ZUSD/USDC, (Arbitrum)USDC/GYEN
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