- Last week, all eyes were on the Japanese yen as concerns about its future continue.
- According to the forex trading platform, the USD/JPY currency pair initially rose to a high above last Monday’s resistance at 160.17, but quickly rose to 152.93 as the Bank of Japan injected more than $33 billion to prevent a collapse. retreated to.
As a result, the Japanese yen became the worst-performing currency in developed countries, plummeting more than 53% from its peak in March 2020. Looking back, the Turkish lira has fallen more than 105% since his November 2011. From the same perspective, the Turkish Lira has become almost worthless, making it one of the worst performing currencies in emerging markets. By and large, it has become one of the worst-performing currencies in emerging markets. It has fallen more than 2,200% from its 2011 high.
For this reason, there are concerns that the Japanese yen will continue to fall like the Turkish lira. To understand this, we need to explain why the Japanese yen has fallen so sharply in recent years. First, Japan is one of the world’s largest importers, as it has few natural resources. Therefore, general trading companies such as Marubeni, Mitsubishi Corporation, and Itochu Corporation took advantage of this trend to acquire natural resources and transport them to Japan. As a result, the depreciation of the Japanese yen caused inflation within the country. According to the results of economic calendar data, the headline inflation rate rose to more than 2% in March. Although this is a low number compared to other countries, it is a large number for a country that is not accustomed to price fluctuations.
Additionally, wages are rising in Japan for the first time in years. In March, the nation’s largest labor union approved the largest wage increase in 33 years.
The Bank of Japan is reluctant to raise interest rates. In other countries, rising inflation is usually accompanied by rising interest rates. Interest rates in the United States and other European countries have risen to their highest levels in more than 20 years. On the other hand, the Bank of Japan is reluctant to raise interest rates. In fact, it became a hot topic when it raised interest rates by 10 basis points in March after emerging from the negative interest rate scenario.
At the same time, the Bank of Japan is concerned about raising interest rates. This is because the country’s debt servicing costs will rise sharply. This is because Japan is one of the most indebted countries in the world, with a total public debt of over $9.2 trillion. This is obviously a big number considering the GDP of this country’s economy is $4.2 trillion and not growing. Furthermore, the Bank of Japan itself has assets of over $8 trillion.
Therefore, a small increase in interest rates increases debt service and budget deficits. Fitch forecasts that Japan’s fiscal deficit will widen to 4.9% of GDP in 2023. As a result, it will be difficult for Japan to get out of its current hole, considering the serious demographic changes associated with population decline. So the lesson in all of this is that the Japanese Yen will continue to depreciate against the US dollar. As we have previously warned, any intervention will be short-lived, as we saw in 2022. Additionally, there are signs that the Federal Reserve will not cut U.S. interest rates this year.
Therefore, amidst these challenges, the question arises whether the Japanese yen will become the next Turkish lira. These two currencies have been in a sharp downward trend for a long time. The Turkish lira, like the Japanese yen, also plummeted due to the actions of the Central Bank of the Republic of Turkey (CBRT), which adopted unconventional monetary policies. For a long time, banks tended to lower interest rates even when inflation spiked.
The bottom line in all this is that most people and businesses have lost confidence in the Turkish lira. Similarly, they avoided buying the currency after Turkey’s central bank raised interest rates to 50%. Therefore, it is still too early to predict whether the collapsed Japanese yen sell-off will continue in the long term. Respectively, we tend to believe it will happen. Japan’s only hope is to hold huge foreign exchange reserves. Japan holds about $1.15 trillion in U.S. debt, which could be used to rescue the yen.
Another near-term expectation for the Bank of Japan is a sharp decline in inflation, which would lead to interest rate cuts by the Federal Reserve. Such a move would narrow the carry trade gap between the US dollar and the Japanese yen.
Today’s USD/JPY technical analysis and forecast:
The price of the US dollar against the Japanese yen (USD/JPY) is currently falling and trading several steps below the 100-hour moving average. As a result, the currency pair is about to fall to the oversold level of the 14-hour RSI. in a few days.
Based on the performance on the hourly chart, the USD/JPY currency pair appears to be trading within a sharp bearish channel. Additionally, the 14-hour RSI appears to be supporting the downside as it approaches oversold levels. Therefore, bears will look for an extended decline around 151.88 or below the support at 151.14. On the other hand, bulls will look for rebound gains near the 153.19 level or the resistance level at 153.73.
In the long term, the USD/JPY currency pair is trading within an ascending channel, according to the daily chart performance. However, the 14-day RSI has recently fallen back to recover from overbought levels. Therefore, the bears will look for a pullback near 146.64 or below the 140.67 support. On the other hand, bulls will be looking to take profits on the resistance at 160.36 near or above 156.16.
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