USD/JPY: USD to come out on top again
The currency market seems to have turned upside down. The US dollar, which has remained a king on Forex this year, suddenly began to lose ground. The yen, which is considered the main outsider this year, took advantage of the greenback's weakness which. It rose significantly.
Why USD loses ground
On Thursday night, the US dollar saw a large-scale sell-off. The US dollar index dived by 1.1%, reaching the monthly low of 109.56.
The greenback dropped across the board due to increased expectations of less aggressive tightening by the Fed and more hawkish stances of the ECB and the Bank of England.
In light of the recent weak US economic reports, traders have revised their outlooks for the Fed's monetary policy.
Investors expect the regulator to raise the interest rate by 75 basis points at the next meeting. However, they believe that the regulator will hardly undertake the same rate increase in December.
Aggressive tightening launched by the Fed to tame soaring inflation has adversely affected the economy. The world's largest economy is starting to show signs of slowing down.
It may force the Fed to shift to less aggressive rate hikes. If this scenario comes true, it will be rather bearish for the US dollar.
This year, the main driver for a rally was the monetary tightening. As the Fed has hiked rates more aggressively than other central banks, the greenback has skyrocketed to multi-year highs against its rivals.
It has grown the most versus the yen amid the divergence in monetary policies of the Fed and the BoJ. Since the beginning of the year, the yen has fallen by more than 20%, logging the worst performance among all the currencies.
The yen has become an outsider due to the Bank of Japan's commitment to a dovish stance. The regulator maintains its ultra-loose stance, while other major central banks are hiking rates.
After expectations of a slowdown in monetary tightening by the Fed have increased, the yen managed to climb.
The yen has been growing for two consecutive sessions. This morning, the Japanese currency extended gains.
At the time of writing the article, the USD/JPY pair fell by 0.5%, trading around 145.6. This is almost 5% below the high of 152 reached last week.
USD likely to rebound
Now, the dollar/yen pair is rapidly recovering after recent sell-offs. It has already approached a 32-year low.
However, many analysts believe that the current rally of the JPY will be short-lived as the US dollar could assert strength amid strong US economic data.
The US GDP report for the third quarter is due today. The indicator is projected to advance by 2.4% following a decrease of 0.6% in the previous quarter.
If this scenario comes true, market participants will have to revise their forecasts for the Fed's further plans for monetary policy, abandoning hopes for a softer stance.
The US dollar is sure to regain ground, while the yen will resume a downward movement.
On top of that, the JPY may decline even more after the results of the BoJ meeting. This event has been the main driver for the yen this week
Given a domestic demand shock in Japan, many analysts believe that the Bank of Japan will maintain its ultra-loose monetary policy to spur economic growth.
"The Bank of Japan will likely keep its main policy levers unchanged, yet again. Core inflation well above the 2% target and set to hit 3% isn't enough to prompt the BOJ to reduce monetary easing. Stronger wage growth is desired first," Bloomberg emphasizes.
The BoJ may keep the interest rate in negative territory, while the ECB may raise the key rate by 75 basis points today. The Fed will do the same next week. This is why the yen may again lose luster with investors.
In the short term, it may resume a sharp decline. If the yen collapses to critical levels again, the Bank of Japan will have to intervene once again.
Over the past month, the Japanese government has intervened in the forex exchange market three times. One intervention was officially announced. Analysts are sure that there have been two more. However, the Ministry of Finance did not announce them.
All interventions had a short-lived effect. The greenback recovered quickly thanks to strong fundamental factors, which boosted bullish bias.
Bulls are confident that the pair will climb again despite any intervention. The main thing is that the Fed adheres to its hawkish stance. If so, the US dollar will definitely resume an upward movement.
The currency market seems to have turned upside down. The US dollar, which has remained a king on Forex this year, suddenly began to lose ground. The yen, which is considered the main outsider this year, took advantage of the greenback's weakness which. It rose significantly.
Why USD loses ground
On Thursday night, the US dollar saw a large-scale sell-off. The US dollar index dived by 1.1%, reaching the monthly low of 109.56.
The greenback dropped across the board due to increased expectations of less aggressive tightening by the Fed and more hawkish stances of the ECB and the Bank of England.
In light of the recent weak US economic reports, traders have revised their outlooks for the Fed's monetary policy.
Investors expect the regulator to raise the interest rate by 75 basis points at the next meeting. However, they believe that the regulator will hardly undertake the same rate increase in December.
Aggressive tightening launched by the Fed to tame soaring inflation has adversely affected the economy. The world's largest economy is starting to show signs of slowing down.
It may force the Fed to shift to less aggressive rate hikes. If this scenario comes true, it will be rather bearish for the US dollar.
This year, the main driver for a rally was the monetary tightening. As the Fed has hiked rates more aggressively than other central banks, the greenback has skyrocketed to multi-year highs against its rivals.
It has grown the most versus the yen amid the divergence in monetary policies of the Fed and the BoJ. Since the beginning of the year, the yen has fallen by more than 20%, logging the worst performance among all the currencies.
The yen has become an outsider due to the Bank of Japan's commitment to a dovish stance. The regulator maintains its ultra-loose stance, while other major central banks are hiking rates.
After expectations of a slowdown in monetary tightening by the Fed have increased, the yen managed to climb.
The yen has been growing for two consecutive sessions. This morning, the Japanese currency extended gains.
At the time of writing the article, the USD/JPY pair fell by 0.5%, trading around 145.6. This is almost 5% below the high of 152 reached last week.
USD likely to rebound
Now, the dollar/yen pair is rapidly recovering after recent sell-offs. It has already approached a 32-year low.
However, many analysts believe that the current rally of the JPY will be short-lived as the US dollar could assert strength amid strong US economic data.
The US GDP report for the third quarter is due today. The indicator is projected to advance by 2.4% following a decrease of 0.6% in the previous quarter.
If this scenario comes true, market participants will have to revise their forecasts for the Fed's further plans for monetary policy, abandoning hopes for a softer stance.
The US dollar is sure to regain ground, while the yen will resume a downward movement.
On top of that, the JPY may decline even more after the results of the BoJ meeting. This event has been the main driver for the yen this week
Given a domestic demand shock in Japan, many analysts believe that the Bank of Japan will maintain its ultra-loose monetary policy to spur economic growth.
"The Bank of Japan will likely keep its main policy levers unchanged, yet again. Core inflation well above the 2% target and set to hit 3% isn't enough to prompt the BOJ to reduce monetary easing. Stronger wage growth is desired first," Bloomberg emphasizes.
The BoJ may keep the interest rate in negative territory, while the ECB may raise the key rate by 75 basis points today. The Fed will do the same next week. This is why the yen may again lose luster with investors.
In the short term, it may resume a sharp decline. If the yen collapses to critical levels again, the Bank of Japan will have to intervene once again.
Over the past month, the Japanese government has intervened in the forex exchange market three times. One intervention was officially announced. Analysts are sure that there have been two more. However, the Ministry of Finance did not announce them.
All interventions had a short-lived effect. The greenback recovered quickly thanks to strong fundamental factors, which boosted bullish bias.
Bulls are confident that the pair will climb again despite any intervention. The main thing is that the Fed adheres to its hawkish stance. If so, the US dollar will definitely resume an upward movement.