USD/JPY is up by more than 6% since the start of the year and has even broken the 150-psychological level.
Saqib Iqbal, a financial analyst at Trading.Biz, thinks JPY’s downturn is connected to BoJ’s ultra-dovish stance, and if this continues, we can see the Japanese yen dropping to 4% in Q1 2024.
He said, “The BoJ kept short-term interest rates at -0.1% last month. Moreover, it adhered to its yield curve control policy, keeping the yield on Japanese government bonds at an upper limit of 1%.
“Despite decades of deflationary pressures, BOJ policymakers have been cautious about stabilizing and reviving the economy.”
According to the recent GDP report, Japan’s economy entered a technical recession as 4Q23 GDP unexpectedly fell -0.1% QoQ.
The bleak economic data complicated the Bank of Japan’s decision on whether to proceed with the country’s first interest rate hike since 2007. This is especially significant given that the JPY has done poorly so far in 2024.
USD/JPY broke 150, EUR/JPY is trading above 162, and GBP/JPY is trading close to 190.
Tokyo has issued its typical verbal warnings. However, these aren’t enough for markets. The recent fourth-quarter Japanese GDP numbers indicate that the BOJ may not be as concerned about the weakening of the yen as they have been in the past. Exports were one of the few drivers of Japanese growth last quarter.
Saqib believes April is too early to expect a big shift in the Bank of Japan’s policies. He expects a rate rise in June.
JPY poised for a downturn rally
After breaking the 150-mark, BOJ said they are monitoring the situation. Their comments imply that, while the bank monitors the short-term rates, there is no urgent effort to offset the yen’s fall.
This approach is viewed from a larger macroeconomic perspective, where a lower yen has already boosted corporate profitability while not significantly influencing import costs.
Saqib believes the 152.00 region is a major resistance level for USD/JPY, with a breach triggering 155. This suggests a downturn of more than 4% from the current levels.
