The yen is updating the anti-records again: the USD/JPY pair broke the mark of 136.00 today - for the first time since October 1998. By and large, each subsequent point of growth will be a new price record of 24 years ago, since in 1998 the pair jumped to the 147th figure. At the moment, this price height looks too far away, unattainable. But here it is necessary to recall that at the beginning of last year, the USD/JPY pair was trading around the 102nd figure, and in a year and a half, it overcame almost 3.5 thousand points. Therefore, if the current trends continue, it will not be difficult for buyers to make an additional "thousandth leap" to the 147 mark. The only question is whether these trends will continue.
The increase in the USD/JPY price is primarily due to the divergence of the Fed and the Bank of Japan rates. The US regulator is consistently tightening monetary policy while accelerating the pace and scale of this tightening. The Japanese Central Bank, in turn, remains true to itself, keeping interest rates at the same level. Moreover, the head of the Central Bank, Haruhiko Kuroda, does not tire of repeating that the regulator will not hesitate to soften monetary policy if necessary.
In addition, the northern dynamics of USD/JPY are due to increased demand for protective assets. The yen, as a rule, is the beneficiary of market unrest – however, paired with the dollar, traders mostly choose an "umbrella" in the form of the American currency. The greenback continues to be in high demand as a protective tool against the background of continuing geopolitical risks.
Recent events have helped USD/JPY buyers to resume the northern trend after a short pause (price pullback to the 131st figure). Initially, the US Federal Reserve surprised the markets with a 75-point increase in the interest rate. At the same time, Jerome Powell voiced very hawkish theses that helped the dollar strengthen its position throughout the market. In particular, he allowed the rate to increase by 75 points in July. However, at the July meeting, Fed members will choose between a 50-point and 75-point increase.
As you know, at the June meeting, only Esther George voted against the general decision. In my opinion, the determination of the members of the American regulator will depend on the dynamics of inflationary growth in June. If the May pace continues (which is very likely, given the dynamics of indirect inflation indicators), the regulator may decide on a 75-point increase in both July and September. By the way, tomorrow and the day after tomorrow, the head of the Fed will communicate with congressmen, voicing the six-month report of the Central Bank. During his speeches, Powell can voice an "ultra-hawkish" scenario, providing additional support to the dollar. I do not doubt that the head of the Federal Reserve will take a hawkish position in Congress, the only question is the degree of this "hawkishness", against the background of slowing GDP growth. However, judging by the results of the Fed's June meeting, the members of the US regulator are ready to fight high inflation even at the cost of a possible recession.Thus, Jerome Powell may announce additional hawkish signals tomorrow, allowing USD/JPY buyers to strengthen offensive actions.
But the sellers of the pair do not have to count on support from the Bank of Japan. The results of the June meeting showed that the majority of the members of the Governing Council maintained a "dovish" position, although Japanese inflation exceeded the target levels for the first time in many years. According to Haruhiko Kuroda, the regulator needs to create conditions for sustained inflation in the country's economy, whereas at the moment the increase in the growth rate of the consumer price index "is due to single factors, such as the rise in energy prices." At the same time, he recalled that consumer prices excluding food and energy increased by only 0.8% in annual terms.
In fairness, it must be said that the yen has a kind of trump card up its sleeve, however, of a very hypothetical nature. The fact is that the Japanese authorities have recently become concerned about the sharp depreciation of the yen. The same Kuroda said that such a rapid rise in USD/JPY "negatively affects the country's economy." Similar rhetoric was voiced by the Minister of Finance of Japan – according to him, the devaluation of the national currency can damage the economy "due to the increase in the cost of imports and a reduction in the net profit of those enterprises that cannot avoid rising costs against the background of a weaker currency."
There is no consensus on the market at what point the Bank of Japan can intervene in the situation "not by word, but by action." According to some experts, this may happen when the USD/JPY exchange rate overcomes the 140.00 mark, according to others, the "red line" is located at the level of 145.00. The last time Japan conducted currency interventions to strengthen the national currency was 24 years ago, in June 1998 (when the pair reached 147.60).
In my opinion, representatives of the Japanese regulator (including Kuroda) in the foreseeable future will resort only to verbal methods of influence – at least until reaching the 140th mark. Up to this point, the probability of currency intervention is extremely unlikely.
All this suggests that the way to the north is still open – at least in the context of the nearest 350 points. Technology says the same thing. On the timeframes H4, D1, W1, and MN, the pair is either on the upper or between the middle and upper lines of the Bollinger Bands indicator. In addition, the Ichimoku indicator has formed one of its strongest bullish signals, the "Line Parade". Therefore, it is advisable to use any corrective pullbacks to open longs with goals of 136.50 and 137.00.
