empty
17.08.2022 10:25 AM
End of story: USD/JPY rally may end soon

This image is no longer relevant

Since the beginning of the year, the dollar has gained more than 10% against the yen. However, now the alignment of forces is beginning to quietly but surely change in favor of the JPY. How and why can the yen take the lead?

The dollar is still on the horse

The main growth trigger for the USD/JPY pair this year was the monetary divergence. While the US Federal Reserve is actively fighting inflation by raising interest rates, its Japanese counterpart continues to go the dovish route.The bearish yen peaked in mid-July. Back then, on expectations of a more hawkish Fed policy, USD/JPY jumped to a new 24-year high of 139.

Many experts predicted that a further increase in the difference in interest rates between the US and Japan would allow the asset to rise above the level of 140. But this did not happen.

On the contrary, since reaching its July low, the Japanese yen has managed to strengthen against the dollar by 3%. It was strongly supported by the latest US inflation report.

Recall that in July, inflationary pressure in the US eased significantly. This provoked speculation about a possible slowdown in the rate hike by the Fed.

However, most Fed officials are still in favor of continuing the aggressive course. This keeps US Treasury yields high and fuels the dollar.

Yesterday, the yield on 10-year US bonds rose to 2.82%, while the greenback index updated a 3-week high, reaching 106.94.

The figures rose ahead of today's release of the minutes of the meeting of the Federal Open Market Committee. Investors expect to see hints of a 75 bps rate hike in the FOMC minutes in September.

Against this backdrop, the USD/JPY pair showed a spectacular rise on Tuesday, soaring to 134. Compared to the low of 131.73 reached on August 11, the asset rose by 1.7%.

This image is no longer relevant

Obvious-incredible: the yen will rise

Despite the current weakness of the Japanese currency against the dollar, some analysts believe that the JPY will begin to gradually gain strength in the near future.

The fact that the yen now has a good growth potential is evidenced by its impressive dynamics in other currency pairs.

Thus, against the euro, the exchange rate of the yen jumped by almost 6% from its June low - a mark of 144. And against the British pound, the yen has grown since the beginning of August by about 4%.

"The yen's selling momentum is clearly waning from its peak," said currency strategist Yukio Ishizuki. – Of course, we are not yet seeing a massive move to buying JPY, but we see that it is becoming increasingly difficult for traders to stick to the strategy of short positions in the yen.

The latest data from the Commodity Futures Trading Commission showed that leveraged investors cut their net bearish bets on the Japanese currency to the lowest level since March last year.

All this indicates that the worst for the yen seems to be over. Just ahead is an ascent in relation to many currencies, including the dollar.

Recall that on June 21, the trade-weighted yen index bottomed out. Since then, the JPY has been able to rise against 8 of its peers from the group of 10.

"This is a sign that the recovery in the yen may be more than just a reaction to the recent narrowing of the gap between US and Japanese bond yields," writes Bloomberg.

According to analysts of the release, the main catalyst for the yen's growth now is the growing fears about the slowdown in global economic growth.

The risk of a global recession amid a deep energy crisis in Europe increases the appeal of safe assets, which traditionally include the Japanese currency.

Bloomberg analysts believe that the level of bull confidence in the yen could be even more stable if the JPY managed to strengthen more against the Australian dollar. Since June 21, the yen has risen only 1% against the aussie.

Meanwhile, a further decline in commodity prices due to fears of a slowdown in the global economy could undermine the position of the Australian currency.

In this case, the yen index is likely to begin a convincing increase, as a result of which a bullet will be put in the USD/JPY rally.

Аlena Ivannitskaya,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

Robinhood drops from the S&P 500 — domino effect hits global markets

Robinhood shares fell after the trading platform was excluded from the S&P 500. Warner Bros. stock declined following the company's announcement of plans to restructure its business. European stocks slid

14:54 2025-06-11 UTC+2

Daily contrasts: Nikkei rises, EUR slips, global markets hold breath ahead of US-China talks

J.M. Smucker declines. The World Bank cuts its 2025 global growth forecast. Nikkei advances, while Wall Street futures and the euro weaken. The dollar shows little movement, and bond markets

14:31 2025-06-11 UTC+2

US Market News Digest for June 11

The US stock market has reached projected levels and now enters a "quiet scouting phase" as investors await the release of key inflation figures. The upcoming data

Ekaterina Kiseleva 13:57 2025-06-11 UTC+2

Contrasts of the day: Nikkei up, euro down, world holds breath ahead of US-China talks

J.M. Smucker falls after pessimistic forecast World Bank cuts global growth forecast for 2025 Nikkei up, Wall Street futures and euro fall Dollar little changed, bonds await CPI and auction

Thomas Frank 07:48 2025-06-11 UTC+2

Rates rise: markets Await CPI, Trump clashes with Musk, Qualcomm acquires Alphawave

The May CPI report is set for release on Wednesday. A budget bill takes center stage amid a public disagreement between Trump and Musk. Alphawave surged following news

14:05 2025-06-10 UTC+2

US Market News Digest for June 10

The S&P 500 and Nasdaq 100 indices posted notable gains, driven by upbeat expectations ahead of the upcoming US-China trade negotiations. Investors are betting on a potential easing of tariffs

Ekaterina Kiseleva 12:52 2025-06-10 UTC+2

Robinhood Drops From S&P 500 — Domino Effect Hits Entire Market

Robinhood Falls After Platform Expelled From S&P 500 Warner Bros. Shares Fall After Company Says Plans to Split Business European Stocks Fall on UBS Drop, U.S.-China Trade Talks Loom McDonald's

Thomas Frank 12:49 2025-06-10 UTC+2

Rates rise as markets await CPI, Trump spar with Musk, Qualcomm acquires Alphawave

May CPI report due Wednesday Budget bill in spotlight amid Trump-Musk rift Alphawave jumps on Qualcomm takeover plans WPP falls after CEO resignation announcement S&P 500 just over 2% above

Thomas Frank 11:49 2025-06-09 UTC+2

Clash of the Titans: Musk vs. Trump as Investors Count Losses

Dow -0.25%, S&P 500 -0.53%, Nasdaq -0.83% Tesla Falls as Trump-Musk Public Feud Grows Initial Jobless Claims Rise for Second Week in a Row Adidas, Puma Shares Fall After Lululemon

Thomas Frank 11:45 2025-06-06 UTC+2

Diverging markets: US stocks stall, Asia accelerates

Dow: -0.22%; S&P 500: flat; Nasdaq: +0.32%. The US services sector contracted in May for the first time in nearly a year. CrowdStrike slumped on a downbeat revenue forecast

12:40 2025-06-05 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.