The Japanese yen is currently facing a significant decline against the US dollar, as evidenced by the USD/JPY pair hovering around 151.88 on Tuesday. This decline is happening despite the instability of the US dollar, largely due to fluctuations in Treasury bond yields. Market participants are exercising caution as the USD/JPY pair approaches levels that have historically prompted Japanese authorities to intervene in the currency market.
Challenges Faced by the Yen
Despite Japan’s verbal efforts to strengthen the yen and combat its excessive depreciation, including statements from Finance Minister Shunichi Suzuki, these measures have not yielded significant success. The threat of intervention by Japanese authorities has prevented the yen from breaching the 152.00 mark, highlighting the ongoing challenges faced by the currency.
One critical factor contributing to the weakness of the yen is the substantial interest rate differential between the US Federal Reserve and the Bank of Japan (BoJ). While the BoJ recently adjusted its lending rate back to zero after a period of negative interest rates, the Federal Reserve has maintained a 5.5% fund rate with no recent cuts. This interest rate gap has put additional downward pressure on the yen.
Looking at the technical analysis of the USD/JPY pair, on the H4 chart, the market has shown a growth wave to 151.75 followed by a correction to the 150.80 level. Another growth wave to 151.75 has been observed, with the market consolidating around this level. An upward breakout from this range could potentially lead to a rise to 152.07, followed by a correction back to 151.75 and a further increase to 152.70. The MACD oscillator also supports this scenario, indicating potential new highs.
On the H1 chart, support at 151.75 has contributed to the development of a growth structure to 152.07. A correction back to 151.75 may occur after reaching this target, with the possibility of further growth towards 152.70. The Stochastic oscillator reinforces this analysis, with its signal line above 50 and poised to ascend to 80.
The Japanese yen is under significant pressure against the US dollar, with challenges including interest rate differentials and the threat of currency interventions by Japanese authorities. Market participants will need to closely monitor these developments to assess the future trajectory of the USD/JPY pair.
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