USD/JPY analysis: no time for mercy?
During its July meeting, the Bank of Japan (BoJ) voted 8-1 to keep its key short-term interest rate (
JPINTR) at -0.1% and 10-year bond yields (JP10Y) around 0%.
However, it lowered its GDP growth forecast for 2022 from 2.9% in April to 2.4%, mentioning slowing global growth and problems with the supply chain caused by the long war in Ukraine. On top of that, as the price of energy, food, and durable goods continue to rise, the board has increased its 2022 inflation projection to 2.3%, up from 1.9%.
The BoJ's policy stance remains extremely dovish. Despite a worldwide wave of central banks tightening policy, the BoJ emphasised in its statement that it will not hesitate to implement more monetary easing measures if necessary.
USD/JPY chart analysis
The Bank of Japan is the only central bank that has yet to join the chorus of the worldwide tsunami of monetary tightening.
Clearly, the prospect for a currency whose central bank is unwilling to raise interest rates when the rest of the world is doing so is tilted to the bearish side.
Although theUSD/JPY pair has already reached severe oversold RSI levels on the weekly chart, fundamentals remain negative for the Japanese yen.
A test of the psychological barrier at 140 is an interesting short-term level, while the most aggressive bulls see 147.55 (the high hit in August 1998) as a medium-term target (6% above current levels).
The alternative scenario involves the onset of a severe US recession with deflationary repercussions as a result of a collapse in demand. This may prompt a reevaluation of the Fed’s rate rises, halting the increasing rate gap with the BoJ, which will be beneficial for the JPY. But this is a remote scenario at this moment due to the strength of the American labour market and supply chain disruptions that cause worldwide inflationary
JPINTR) at -0.1% and 10-year bond yields (JP10Y) around 0%. However, it lowered its GDP growth forecast for 2022 from 2.9% in April to 2.4%, mentioning slowing global growth and problems with the supply chain caused by the long war in Ukraine. On top of that, as the price of energy, food, and durable goods continue to rise, the board has increased its 2022 inflation projection to 2.3%, up from 1.9%.
The BoJ's policy stance remains extremely dovish. Despite a worldwide wave of central banks tightening policy, the BoJ emphasised in its statement that it will not hesitate to implement more monetary easing measures if necessary.
USD/JPY chart analysis The Bank of Japan is the only central bank that has yet to join the chorus of the worldwide tsunami of monetary tightening.
Clearly, the prospect for a currency whose central bank is unwilling to raise interest rates when the rest of the world is doing so is tilted to the bearish side.
Although the
USD/JPY pair has already reached severe oversold RSI levels on the weekly chart, fundamentals remain negative for the Japanese yen.A test of the psychological barrier at 140 is an interesting short-term level, while the most aggressive bulls see 147.55 (the high hit in August 1998) as a medium-term target (6% above current levels).
The alternative scenario involves the onset of a severe US recession with deflationary repercussions as a result of a collapse in demand. This may prompt a reevaluation of the Fed’s rate rises, halting the increasing rate gap with the BoJ, which will be beneficial for the JPY. But this is a remote scenario at this moment due to the strength of the American labour market and supply chain disruptions that cause worldwide inflationary
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