Stay Ahead in Digital Forex: Insights on the Latest USD/JPY Movements
If there is one thing that is the talk of the forex town these days, it’s the Japanese Yen. The currency has generated a lot of buzz among analysts and investors mainly because of the BOJ’s policies.
The market got hyped by December’s BOJ meeting, and the investors didn’t get what they expected in January’s meeting.
So, what’s going on with the USD/JPY currently, and what can we expect?
In this guide, we’ll answer these questions and paint an overall picture of USD/JPY.
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 update on the price movements of major currencies and analyze the policies and economic factors driving them.
What’s going on with USD/JPY?
What we saw in 2022, there was ultimate dominance of USD, and the dovish policies of BOJ (Bank of Japan) kept the bulls going. However, things can change quickly in the forex market.
USD/JPY has been on a wild ride. The pair has dropped by 0.75% so far in 2023, and in the last six months, it has dipped by 6.11%. As always it’s the battle between the Fed and the BOJ, which drives the price of the USD/JPY.
The unchanged BOJ
On January 18, BOJ announced its monetary policy. The Bank opted not to make any more changes to its yield curve control program, causing the yen to fall sharply as it attempted to dampen expectations about policy normalization driven by December’s shock move.
In December’s meeting, BOJ increased its restriction on ten-year government bond rates from 0.25% to 0.5%, raising the possibility that it will quit its yield-curve-control policy. This sent many speculators into a frenzy, and the increase in bets on JPY’s climb began.
According to the central bank’s latest policy statement, its major policy settings remained unchanged, with the negative interest rate remaining at -0.1% and 10-year bond rates hovering around 0%.
The BOJ indicated its determination to continue large-scale bond purchases and to raise them on a flexible basis to defend its yield curve control program for the time being.
The yen fell due to the news and is still trading above the 130 level against the USD.
According to statistics released on Friday, inflation was at its highest since 1981, and it was over the BOJ’s 2% target for the ninth month in a row.
The BOJ is one of the only central banks stuck to its guns in 2022, neither increasing interest rates nor ceasing large asset purchases while global inflation has increased.
And a large portion of the increase is due to rising energy prices and a weak yen, which touched a 32-year low versus the dollar in October. As a result, the BOJ considers that underlying inflation has yet to reach its goal level of 2% sustainably.
Last month’s core consumer prices increased by 4% yearly, doubling BOJ’s target goal.
It increases the pressure on the central bank to raise interest rates to reduce the increased living expense. Many experts anticipated the central bank to begin phasing out its economic stimulus program to control surging prices.
However, Japan reported that core consumer prices grew to 4% annually in December, above the central bank’s objective of 2%.
“We expect, probably from February this year, inflation rates start to decline and in the fiscal year 2023 as a whole, the inflation rate will be less than 2%. So, we decided to maintain the current extremely accommodative monetary policy for the time being,” BOJ Governor Kuroda said.
What’s up with the USD?
The USD bulls tried to maintain 2022’s dominance, but after the release of CPI on January 12, the markets seem to be changing.
Annual inflation fell for the sixth month in December, falling to its lowest level in more than a year and showing the effects of the Federal Reserve’s persistent monetary policy tightening measures.
With the decades-long inflation showing signs of cooling, investors are increasingly convinced that the Fed is approaching the end of its rate-hike cycle and that rates will not rise further.
Since the latest data release, the dollar has mostly remained steady versus most currencies. When the Fed delivers its policy decision in February, according to CME Group data, markets are currently pricing in a 94% likelihood of a 25-basis-point rise, with a 5% possibility of a 50-bps hike.
Should stay on the course
After signaling another rate rise next month, Powell and the company will almost definitely follow through, raising the federal funds rate by another quarter point to above 4.5 percent. But they now have a lot to think about.
As inflation rose in 2020 and 2021, they may have responded slowly. With pricing pressures already lessening, they must be careful not to move too slowly again.
While there are promising indicators that inflation has slowed, Federal Reserve Vice Chair Lael Brainard said on January 19 that the central bank should continue to tighten monetary policy to restrain economic price increases.
Janet Yellen, the Treasury Secretary, notified congressional leaders on Thursday that the United States has reached its debt ceiling, restricting the amount of money the government may borrow to pay all its payments.
Yellen encouraged Congress to act fast to increase the debt ceiling and keep the United States from defaulting on any of its financial liabilities, which would have severe implications.
What to expect?
Many analysts believe the BOJ does not have the luxury of saying it will analyze and wait until Q2 or Kuroda’s term ends before making any more adjustments. Haruhiko Kuroda, Governor of the Bank of Japan, will step down in April.
If the BOJ changed its policy, then USD/JPY could move in a downward trajectory.
The investors also emphasize the Fed meeting at the start of next month. After four consecutive 75-basis-point increases, the central bank raised interest rates by 50 basis points in December, and the market expects another cut.
A less hawkish stance by the Fed can weaken the USD against JPY.
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