USDJPY Fundamental Analysis – 15-July-2024

The Japanese yen steadied around 158.0 (USD/JPY) per dollar in light trading on Monday, influenced by domestic interventions and international events. This stability comes after a notable 2% surge in the yen last week, driven by what is suspected to be an intervention by Japanese authorities.

This intervention followed cooler-than-expected US inflation figures, with data from the Bank of Japan (BOJ) suggesting that the government might have spent approximately 3.57 trillion yen on Thursday to support its currency.

Understanding Market Interventions

Currency interventions occur when a country’s central bank buys or sells its currency in the foreign exchange market to influence its value. In this case, the BOJ’s suspected intervention was strengthening the yen.

The reason behind this intervention is likely to manage the yen’s value amidst fluctuating economic conditions and maintain financial stability. A stronger yen can help reduce the cost of imports, thus benefiting consumers and businesses that rely on foreign goods and services.

Implications of US Inflation Figures

Lower-than-expected US inflation figures influenced the yen’s recent rally to 157.36 per dollar. Inflation measures the rate at which prices for goods and services rise, eroding purchasing power.

More relaxed inflation figures suggest the US Federal Reserve might slow down its interest rate hikes, leading to a weaker dollar. As the dollar weakens, the yen strengthens, benefiting from the relative shift in currency values.

Thin Liquidity and Market Movements

Monday’s holiday-thinned trade refers to reduced trading activity due to the holiday, which can lead to increased market volatility. Analysts warned that this thin liquidity could prompt another round of yen-buying by Japanese authorities, similar to actions taken in late April.

Even small transactions can significantly impact currency values during periods of low trading volume, providing a strategic opportunity for central banks to intervene.

USDJPY Fundamental Analysis – 15-July-2024

Investors are closely watching the BOJ’s policy meeting in late July. The BOJ is anticipated to announce plans to taper its bond purchases and possibly raise interest rates.

Bond purchase tapering refers to the gradual reduction of the central bank’s bond-buying program, which has been used to inject money into the economy. Raising interest rates can strengthen the currency by attracting foreign investment, as higher rates offer better returns on assets denominated in that currency.

External Pressures on the Yen

Externally, the yen faces pressure from a rising dollar, which has been bolstered by safe-haven bids following an assassination attempt on former US President Trump. Safe-haven assets are investments that are expected to retain or increase in value during times of market turbulence. The dollar often benefits from such scenarios as investors seek stability.

Conclusion

In summary, the Japanese yen’s current stability results from strategic interventions, changing US economic conditions, and international events. The BOJ’s upcoming policy decisions and external geopolitical developments will continue to shape the yen’s trajectory as we look ahead. Investors and market participants should remain vigilant and informed, as these factors will be crucial in determining future market movements.

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