Is This One of Those Times to Buy USD/JPY?

USD/JPY has experienced a significant rally in the last two months, climbing from around 137 in July to almost 148 last week. This rally can be attributed to a combination of factors, including the rise in US Treasury yields and the strength of the US dollar (USD), which have created upward pressure on USD/JPY.

There aren’t any major reasons against the rally USD/JPY, with Bank of Japan (BOJ) refraining from implementing policy changes that could counteract this trend. The BOJ’s cautious approach in the past, where they have postponed significant policy changes, has also played a role in allowing the USD/JPY pair to continue its upward trajectory.

Although early today we saw a 200 pip decline, as the price opened with a bearish gap and then continued lower. This pair experienced a retreat of more than 1% today, sending the price below 146 briefly. This drop in value occurred in response to Bank of Japan (BOJ) Governor Ueda’s comments regarding a “stealth exit” from the current extremely accommodative monetary policy. We saw a 100 pip bounce as USD/JPY climbed to 147, but the selloff has resumed again.

In essence, Governor Ueda’s remarks appear to have had a significant impact on the currency pair, leading to a noticeable decline today, as the USD is also suffering from some weakness after the bullish momentum last week. This likely reflects concerns or uncertainties among investors and traders about the BOJ’s intentions regarding its monetary policy. A “stealth exit” implies a gradual or subtle shift away from the current easy monetary policy, which can influence currency markets and investor sentiment.

Allowing 10-year Japanese Government Bond (JGB) yields to be more flexible and potentially reach around the 1.00% mark could act as a tailwind for the yen is valid. Changes in interest rates can significantly influence currency markets, and a higher yield on JGBs could make yen-denominated assets more attractive to investors.

However, despite the talk of a “stealth exit,” actual policy actions have been lacking or unclear. Central banks frequently use forward guidance and hints about future policy direction, but until concrete steps are taken, the market may remain skeptical.

Governor Ueda and policymakers have had several opportunities to clarify their intentions, but as we have noted, they have not followed through on potential policy changes that could impact the yen’s value. The market has experienced similar disappointments since March, which can erode trust in central bank communications. As a result, we decided to open a buy USD/JPY signal a while ago, with the idea that buyers will return and resume the bullish trend again.

USD/JPY Live Chart