Yesterday, for the first time in 2023, the yen weakened to 150.7 per US dollar.
Thus, since the beginning of autumn, the yen has weakened by 3.5%, continuing the trend of 2023, which is due to the difference in the monetary policies of the two countries.
The Fed is pursuing a high rate policy. Yesterday’s news testified to the stability of the economy, as US GDP is growing: fact = 4.9% in annual terms; expected = 4.5%; quarter ago = 2.4%. This provides a cushion for the Fed to continue keeping rates high to combat inflation.
At the same time, the Bank of Japan continues its ultra-loose policy, keeping the rate below zero. Today’s news showed that Japan’s CPI was: actual = 2.7%, expected = 2.5%, a month ago = 2.5%. That is, inflation in Tokyo is raising its head, which increases pressure on the Bank of Japan.
The Bank of Japan meeting will be held next week; on Tuesday, market participants may receive important news about the authorities’ response to the weak yen and rising inflation. The chart shows that traders are afraid that the USD/JPY rate could drop sharply because progress in the development of the current trend is slowing down.
Note:
→ the divergence on the MACD indicator. The pressure of the bulls weakens;
→ having reached the high of the year, the price shows bearish dynamics today, showing the market’s unwillingness to gain a foothold at the top;
→ the upper boundary of the channel already seems unattainable;
→ the bullish momentum on October 25-26 may turn out to be a trap if the October 3 high is broken.
If the Bank of Japan takes real measures to support the yen, the USD/JPY rate may break down the current channel shown in blue.
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