empty
13.06.2024 12:28 AM
A decline in US inflation will allow the yen to initiate a bearish USD/JPY reversal

The US Consumer Price Index declined to 3.3% on a yearly basis in May from 3.4% in April, while the core index fell even more sharply from 3.6% to 3.4%. The slowdown in inflation completely offset the effect of the strong labor market. The bond market responded with a sharp decline in yields, and the likelihood of the first Federal Reserve rate cut in September has risen significantly.

This image is no longer relevant

The Federal Reserve held its meeting on Wednesday. The interest rate was expected to remain unchanged, but economic forecasts and the rate trajectory were highly likely to be revised. This signals a potential weakness for the US dollar, and we expected volatility to spike following the meeting.

The Bank of Japan will hold its meeting on Friday. A 0.1% rate hike is not expected, but the Bank may announce a program to reduce bond purchases. Such a decision would be the BOJ's first clear step towards quantitative tightening after abandoning the large-scale stimulus program in March and it could be the start to policy normalization. Although the Bank states that it does not target foreign exchange rates, a change in the bond purchase regime or a clear hawkish signal would work in favor of the yen's growth.

Forecasts vary widely. If the BOJ is too cautious, the yen may weaken further and head towards the 160 level, where intervention to prevent further depreciation would likely occur. If the measures are aggressive, bond yields will rise sharply, complicating the government's ability to service its accumulated obligations.

The net short JPY position decreased by $1.75 billion to -$10.6 billion, indicating that positioning remains strongly bearish but a trend reversal is emerging. However, the price is not falling, suggesting that conditions for a bullish bias on the yen have not yet materialized.

This image is no longer relevant

USD/JPY is trying to resume its uptrend, which happens whenever the BOJ avoids providing specific details about its future course of actions. Japanese bond yields declined amidst growing uncertainty regarding the BOJ's plans. The substantial yield differential objectively forces the use of the Japanese currency in carry trade transactions, and this will continue until the BOJ decides to proceed with raising its rate.

Nevertheless, we believe that buying USD/JPY is too risky due to the high probability of another currency intervention. Therefore, we adhere to the same strategy – sell on rallies. If the pair rises above 159, the threat of intervention will increase significantly. While the pair remains below this level, local bullish impulses are possible.

Kuvat Raharjo,
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

The Whole World is a Stage, and Countries Are Its Actors... (A Limited Decline in Gold and a Rise in Bitcoin Are Possible)

Iran responded to the U.S. with a strike on an American military base in Qatar, thereby demonstrating its resolve for retaliation and confrontation. Markets reacted in a rather peculiar

Pati Gani 09:25 2025-06-24 UTC+2

The Market Has Moved On From the War

Does Iran want war? Judging by the symbolic attack on American bases in Qatar, Tehran does not appear eager to enter into an armed conflict with Washington — which

Marek Petkovich 07:19 2025-06-24 UTC+2

What to Pay Attention to on June 24? A Breakdown of Fundamental Events for Beginners

Very few macroeconomic reports are scheduled for Tuesday, and none are of significant importance. Essentially, the only one worth mentioning is the German Business Climate Index —

Paolo Greco 07:19 2025-06-24 UTC+2

GBP/USD Overview – June 24: No Confirmation of Destruction

The GBP/USD currency pair also traded relatively calmly on Monday. While there were some price "swings," many traders and analysts had expected a much more significant move. The dollar strengthened

Paolo Greco 03:45 2025-06-24 UTC+2

EUR/USD Overview – June 24: Iran Exits Talks and Launches a Retaliatory Strike

The EUR/USD currency pair traded extremely calmly on Monday, considering the intense fundamental backdrop that developed over the weekend. Recall that over the weekend, Donald Trump once again "changed

Paolo Greco 03:45 2025-06-24 UTC+2

Trump Keeps Hitting a Wall

There's a saying: "An irresistible force meets an immovable object." It describes an irreconcilable standoff where neither side is willing to compromise. In my view, Trump's "scythe," with which

Chin Zhao 00:12 2025-06-24 UTC+2

Should We Expect De-escalation in the Middle East?

The market has absorbed the news of U.S. strikes on Iran's nuclear facilities quite resiliently. Why did this happen, and why was the reaction relatively muted? These questions are unlikely

Chin Zhao 00:12 2025-06-24 UTC+2

What Will Powell Say?

Starting June 24, Fed Chair Jerome Powell will address Congress over two days, delivering the semiannual monetary policy report. On Tuesday, he will speak before the Senate Banking Committee

Irina Manzenko 00:12 2025-06-24 UTC+2

The Euro Gets a Knife in the Back

Trouble never comes alone. European industry is beginning to lose steam after rapid growth driven by a front-loaded surge in U.S. imports. The euro area is a net oil importer

Marek Petkovich 00:11 2025-06-24 UTC+2

XAU/USD. Analysis and Forecast

Today, gold is attracting new sellers. Amid a sharp escalation in the conflict between Iran and Israel, the United States conducted airstrikes on three Iranian nuclear facilities in Fordow, Natanz

Irina Yanina 17:59 2025-06-23 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.