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Is there life after 150? USD/JPY currency pair forecast

Commentaries & Views

Since the beginning of the year, discussions have revolved around the limit for the USD/JPY currency pair. A single US dollar now costs 150 Japanese yen, a reality that seemed improbable just a few months ago. But is it possible for the yen to further depreciate, or have we come to a close of this downward trend?

First, let’s take a look at the USD/JPY pair movements since the beginning of 2023. If you don't hold yen in your portfolio, you might envy the consistent and steady growth seen in this chart.

However, these charts tell more about the yen’s weakness rather than about the strength of the US dollar. Just pay attention to the following chart which illustrates all major currency pairs in 2023 concurrently, and it becomes evident that the yen is a clear underperformer by a considerable margin.

A glance at the historical chart reveals harsh circumstances facing the yen now. The level of 150 is a critical psychological mark. Similar low levels were last seen in the early nineties.

In the meantime, the Bank of Japan adheres to its negative interest rate policy. One factor supporting such an approach is the generally low energy prices in 2023. Japan ranks among the largest importers of various natural resources, and these low costs help offset the depreciation of the national currency.

Japan, however, has not entirely given up the negative rate policy and has shown adaptability in other areas, including potential adjustments in yield curve control and currency interventions.

Plus, the latest economic news from the US has lost some of its luster, but the US treasury bonds yield remains high, and the interest rates are at their peak as well. It's unlikely that these will see significant increases in the near future, according to experts, so no significant hikes for the USD are coming shortly. 

In other words, experts don’t anticipate the exchange rate surpassing 152 by year's end (huh, not at the first time, yep?). Nevertheless, investors must monitor any new developments in the Middle East crisis. While it may not be immediately obvious, this military conflict could impact energy prices and deteriorate the economic conditions in Japan.

The next year is expected to usher in a shift in the USD/JPY trend. US bond yields may decline, and the Federal Reserve could begin to adjust interest rates. These developments are likely to weaken the US dollar and serve as positive drivers for the JPY.



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