At the end of last week, the USD/JPY pair soared to a 32-year high. Now, analysts expect the continuation of the rapid rally to new record highs.
USD maintains stellar rally
Since the start of the year, the Japanese currency has sunk versus the US dollar by more than 23% due to the growing divergence in the monetary policies of the BOJ and the Fed.
Over the past week and a half, the yen has depreciated considerably following a batch of hawkish remarks from Fed policymakers. During the 8 sessions, it fell by 3%.
One of the steepest drops in the yen occurred last Friday. It decreased versus the greenback by 0.7%, reaching a low of 148.85.
The last time the yen traded at this level was in 1990. It approached a 32-year low because of increased concerns about the growing divergence between Japan and the US.
The US inflation report for September published last week reinforced expectations of further monetary tightening by the Fed.
Despite the previous sharp rate hikes, consumer prices remain stubbornly high. This is why the Fed may act more aggressively.
The majority of investors believe that the regulator will hike the key rate by 75 basis points at the November meeting. Some analysts do not exclude the possibility of a 100 basis point rate increase.
Meanwhile, the BOJ continues to keep interest rates in negative territory.
Moreover, last week, BoJ Governor Haruhiko Kuroda once again expressed a strong commitment to the dovish stance despite the fact that it is the main reason for the depreciation of the yen this year.
JPY to drop lower due to strong USD
Kuroda also pinpointed that the regulator intends to stick to the ultra-loose monetary policy until inflation runs steadily at the target level and the economy finally recovers after the pandemic.
Bulls pushed the USD/JPY pair higher following such statements. At the time of writing the article, the quotes jumped by 0.1%.
The pair is now trading in the bullish corridor despite the remakes from Japanese Prime Minister Fumio Kishida.
In the morning, he hinted that a decision on a successor to Bank of Japan Governor Haruhiko Kuroda may still be months away. He offered no timeline and no names of potential nominees. The term of Haruhiko Kuroda ends in April.
If the government finds a new candidate for the post, it may lead to a change in the monetary policy stance next year.
Nevertheless, many analysts are skeptical about the possibility of a sharp change from a dovish to a hawkish.
A new BoJ Governor may take a neutral position, which will not help the yen significantly if the Fed continues to aggressively raise rates.
Bulls are not afraid of another currency intervention. On Monday morning, Japanese Finance Minister Shinichi Suzuki again warned that the regulator could intervene if sharp moves in the yen persist.
A rapid fall of the dollar/yen pair to 145.90 last month forced the watchdog to make its first intervention in 24 years.
Now, the BoJ is trying to convince the market that it does not have a critical level for intervention.
Last week, several officials said that it may occur if there are sharp speculative moves in the yen. However, after that, the yen declined drastically but no intervention followed.
Analysts reckon that the central bank has set a threshold at the level of 150.
As the pair is approaching this level, market tensions are mounting. However, it will barely undermine bullish sentiment, especially if the US dollar maintains its rally amid aggressive tightening.
Traders are aware that the effect of the intervention will be short-lived again and the greenback will rise higher thanks to favorable fundamental factors.
