Title: Bank of Japan’s Efforts Send Yen on Rollercoaster Ride, USD/JPY Shows Signs of Recovery
Date: August 1, 2021
In the Asian session on Tuesday, USD/JPY witnessed some significant price movements as the yen extended losses following the Bank of Japan’s recent decision to ease its grip on interest rates. The latest price of USD/JPY was recorded at 142.562, while the opening price stood at 142.261. Despite the losses, the yen is on track for its first monthly gain against the dollar since March.
The Bank of Japan’s move to increase the flexibility of its bond yield curve control policy and loosen its hold on long-term interest rate caps had a pronounced impact on the Japanese yen. On Monday, fresh intervention by the Bank of Japan resulted in USD/JPY experiencing a 0.77% surge to reach 142.240. However, wild swings in the yen were observed on Friday as traders tried to assess the consequences of the central bank’s actions.
The Bank of Japan’s policy of suppressing yields has weighed heavily on the yen over the past year. The recent intervention suggests that this trend may continue in the future. As evidence of the impact, Japan’s benchmark 10-year government bond yield rose to a nine-year high, prompting the Bank of Japan to intervene further to curb the rise in yields.
The USD/JPY pair is not the only one experiencing fluctuations. The dollar has recorded its first monthly loss against the yen since March, and it has also fallen for a second consecutive month against the euro and sterling. The slowdown in U.S. annual inflation in June, which was the slowest in more than two years, has eased pressures on core prices. Consequently, it has alleviated the pressure on the Federal Open Market Committee (FOMC) to continue raising interest rates.
In terms of trading strategy, experts suggest that buying USD/JPY within the range of 143.10 to 141.90 could be a profitable move. This range allows for a break of position by 40 points with a stop-loss order in place. The target for this trade is set at the upper limit of the aforementioned range.
The fluctuating global market conditions and the Bank of Japan’s interventions continue to play a significant role in driving the USD/JPY pair. Traders and investors are advised to closely monitor these developments to make informed decisions.
Key words: Bank of Japan, interest rates, USD/JPY, yen, bond yield curve control policy, intervention, volatility, inflation, trading strategy.