Forex Analysis & Reviews: 16.05.2024 - The Bank of Japan will not...

Live Chat

InstaForex Loprais Team - Official participant of the Dakar rally

This section features the most important information about trading with InstaForex. We provide both analysis from leading experts for experienced traders and articles on trading conditions for beginners. Our services will help increase your profit potential.

Become Trader

Account Opening

See also

Trading Conditions

Forex Analytics

Charts

This section is designed for those who are just starting their trading journey. InstaForex educational and analytical materials will meet your training needs. Our experts' recommendations will make your first steps to trading success simple and clear.

Start as Beginner

How to start trading

Useful information

Training and recordings

InstaForex innovative services are an essential element of productive investment. We strive to provide our clients with advanced technical capabilities and make their trading routine comfortable as we are recognized as the best broker in this regard.

Become Investor

PAMM System

ForexCopy System

Passive investments

OYS account

Partnership with InstaForex is beneficial and top-tier. Join our affiliate programs and enjoy bonuses, partner rewards, and the possibility to travel with the team of the world-renowned brand.

Become Partner

Main Page

Partner Area

Advantages for Affiliates

Registration

This section contains the most lucrative offers from InstaForex. Receive bonuses when topping up an account, compete with other traders, and get real prizes even when trading in a demo account.

All Promo Campaigns

Bonuses

Contests

Events

Holidays with InstaForex are not only pleasant but also useful. We offer a one-stop portal, numerous forums, and corporate blogs, where traders can exchange experiences and become successfully integrated into the Forex community.

Full details

Forums

We are in social networks

Forex humour

Forex Portal

InstaForex is an international brand created in 2007. The company provides services for online FX trading and is recognized as one of the world's leading brokers. We have won the trust of more than 7,000,000 retail traders, who have already appreciated our reliability and focus on innovations.

Learn More

History

Why Choose Us

InstaSport

Regulation

Company News

Awards

InstaForex Stars

InstaForex Offline

Headquarters

Key documents

Social Responsibility

InstaForex - Official partner of Dragon Racing

16.05.2024 01:31 AM

The Bank of Japan will not allow the yen to weaken. Overview of USD/JPY

The yen was able to strengthen against the dollar after the Bank of Japan published a Summary of Opinions from its monetary policy meeting on April 25 and 26. The summary contained rather aggressive comments on two key topics for the yen: rate hikes and reducing bond buying. The document provided additional confirmation that the BOJ is preparing for a series of rate hikes and will reduce its purchases of long-term Japanese government bonds (JGB). The minutes contain clear hints that the central bank will combat a sustained depreciation in the yen.

While the issue of raising rates is a fairly obvious one, reducing bond purchases is an ambiguous step. The Japanese central government has been running budget deficits since 1993, and the government's funding comes from the constant issuance of bonds that the BOJ buys because they are unappealing to foreign investors due to nearly zero yields. The greater the yield differential between UST and JGB, the weaker the yen becomes.

If the BOJ is preparing to shift to quantitative tightening, then who will finance the government? Obviously, it is necessary either to achieve a sustainable budget surplus, which is currently impossible, or increase the appeal of bonds for foreign investors, which can only be achieved by raising yields. This, in turn, will again increase the burden on the budget due to higher interest payments.

The likely strategy will be to boost real household incomes, which explains the close attention to forecasts for average wage dynamics. Income growth would help keep inflation around 2%, justifying a rate hike and, consequently, higher bond yields.

Only time will tell whether this is the case or not, but the weak yen phase appears to be coming to an end as the negatives are clearly outnumbering the positives.

The net short JPY position sharply decreased by $2.4 billion to -$10.9 billion over the reporting week. The bearish bias remains intact, but the volume of short positions have been declining for two consecutive weeks, and the price no longer indicates a high probability of further growth in USD/JPY.

The yen is still trading near the 160 level, but there are lower chances of testing this level again. Objectively, the yen should weaken due to the substantial yield differential, but in the long term, the situation will change in its favor. The question is when these changes will be enough for the yen to start appreciating for objective reasons, rather than through monetary interventions. For speculators, betting on a weaker yen is becoming too risky. Therefore, the most obvious strategy is to sell USD/JPY on attempts to rise, anticipating a global reversal.

You have already liked this post today

*Disclaimer: The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.