How low can the USD/JPY fall? Interest in yen appreciation fades near the 50-week moving average

Daocheng Technology Financial News - Monday (May 6) European session,USD/JPYThe intraday move was smooth, trading around 153.75, up about 0.58%. On Friday, USD/JPY fell below 153 in early trading, its lowest in three weeks, and was down more than 4.5% from its peak of 160.2 at the opening on Monday. The pairCurrency appreciationBehind it is a long-term fundamentals: large and widening interest rate differentials, and shrinking interest rate differentialstrade surplusThe currency intervention of the Japanese Ministry of Finance caused the decline. Let's try to analyze at what level the intervention of USD/JPY will stop.

The growth momentum of the yen is waning. In October 2022, USD/JPY fell from a peak of 151.8 to a bottom of 127.3 (-16.3%) in about three months. The correction in November 2023 is only half as frequent (1.5 months) and as large (-7.6%) as the previous one.

In the absence of direct intervention, the growth momentum of the yen has also become less pronounced. USD/JPY has also experienced two sustained declines, in July 2023 (around 5%) and March 2024 (around 2.7%), due to speculation that the Bank of Japan will shift to aggressive monetary tightening.

(Weekly chart of USD/JPY)

The Japanese authorities are not in a hurry to spend too much foreign exchange reserves. They are content with less success than they had in the 1990s. They have chosen to intervene when foreign exchange liquidity is least, with less money to have a more visible impact on technical charts.

We have also noticed that the Bank of Japan has been very slow to tighten monetary policy. After raising interest rates in March, there was no further tightening as many had expected.

This slowness echoes the false hope that Japan's monetary policy has generated in recent years. The goal of the financial and monetary authorities is hardly to put the yen on a growth path, but only to slow its decline. This would allow Japan to further improve the competitiveness of its exports and revive domestic demand at the expense of inflation.

Daocheng TechnologyThink that interest in yen appreciation will suddenly fade as USD/JPY approaches its 50-week moving average. This is the case in 2023. By the end of this year, the curve will be around 150 and is now crossing 147.

However, the possibility of the USD/JPY falling to 122 cannot be completely ruled out, as the pair is near its 2007 and 2015 peaks.