USDJPY Fundamental Analysis – 29-July-2024

On Monday, the Japanese yen stood near 154.2 per dollar, continuing its upward trend from the previous week. This appreciation, which saw the yen gain over 2% last week, is driven by increasing speculation that the Bank of Japan (BoJ) will raise interest rates in its upcoming meeting. Investors and market participants believe this move aims to control inflation and defend the yen’s value against other major currencies.

Japan’s Central Bank to Raise Interest Rates

The markets are betting that the BoJ will increase interest rates by 10 basis points, bringing the rate to 0.1%. This would mark a significant shift in Japan’s monetary policy, which has been characterized by low or negative interest rates for years. Such a change is expected to accompany the central bank’s plans for quantitative tightening, a strategy to reduce the amount of money circulating in the economy, which could further support the yen.

US Rate Cut Speculation Boosts Yen

The yen’s rally began in mid-July, initially triggered by a suspected intervention from Japanese authorities to prop up the currency. This intervention likely led to a forced unwinding of long-held carry and short trades, contributing to the yen’s strength. Additionally, global equities sold off, prompting investors to seek safe-haven assets like the yen. The anticipation of the US Federal Reserve cutting rates soon also weakened the dollar, thereby boosting the yen.

• Also Read: NZD/USD Fundamental Analysis – 29-July-2024

USDJPY Fundamental Analysis – 29-July-2024

The strengthening yen has several implications for the market. A higher interest rate in Japan could attract more foreign investment, boosting the yen further. However, it could also make Japanese exports more expensive, potentially impacting Japan’s trade balance. Investors should closely monitor the BoJ’s upcoming decisions and global economic trends to make informed decisions.

The yen is likely to remain strong if the BoJ raises rates as expected and outlines a clear quantitative tightening plan. However, ongoing global economic uncertainties and actions by other central banks, particularly the US Federal Reserve, will influence the yen’s trajectory. Investors should stay informed about these developments to navigate the market effectively.

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