USD/JPY uptrend alive and well - should go further
Aug 30 (Reuters) -The USD/JPY uptrend which has been strengthened by the correction from 161.75 in July to 141.68 in August should go further as it is supported by both techs and fundamentals.
While the recent plunge has encouraged trades to sell short it is very small when compared to the rise that has resulted from ultra-easy monetary policy in Japan. When viewed against the move up from 75.31 in 2011 after Japan's interest rate reached the zero bound in 2010, the drop is fairly insignificant, stopping 17 pips short of a 23.6% retracement of that massive rise.
The reaction from the low which reached 149.40 within 10 days is telling. It suggests much pent up demand which probably stems from the expectations of Japanese firms for USD/JPY to average 142-144 in the current financial year which ends next March.
Next March, Japan's central bank will still be buying lots of bonds while Japan's interest is eyed around 0.35%. The U.S. interest rate is eyed around 3.75% - if it is cut at each of the five meetings. The interest rate differential supporting dollar is not expected to drop below 2.5% in the next two years, and BOJ is not expected to stop buying debt.
This year's reverse which was influenced by FX intervention has stopped roughly 13 yen higher than the lows which followed similar intervention in 2022, and from this much higher base, the combined force of U.S. and Japanese monetary polices is set to support USD/JPY.
The vital difference now is that traders are short and many carry trades have been unwound. Freed of the burden of speculative positions, USD/JPY could rise further and faster than it did before and might reach the next long-term target at 181.
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(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)
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