Will the USDJPY Recovery Last?

USDJPY crashed 20 cents lower in about a month, with the decline escalating in the last two weeks, but in recent days we’ve seen a bounce. however, markets remain very agitated despite the reduction in leverage as many traders got burned during the huge moves in almost all financial markets.

USD/JPY Chart Weekly – The 100 SMA Held As Support

The markets fell into a panic when the Nikkei dropped more than 12%, prompting traders to flock to safe-haven currencies like the CHF and JPY. However, as investor confidence recovered, the USD/JPY pair rose after bottoming at 141.69, reaching 147.90 yesterday. The differing monetary policies of the Federal Reserve and the Bank of Japan are having a notable impact on USD/JPY. The market is expecting the Fed to lower rates by 50 basis points in September, with odds over 50%, contrasting with the BOJ’s recent 15 basis point rate increase.

However, recent remarks from the BOJ indicate there may not be further hikes, which has stabilized sentiment. Deputy Governor Uchida of the Bank of Japan made statements contrasting with Governor Ueda’s more aggressive stance, causing the yen and Nikkei index to briefly stabilize. Uchida mentioned that if current market volatility impacts the BOJ’s inflation and economic forecasts, it could “obviously” affect the rate hike path.

Earlier this week, Japan’s cash earnings and household spending data were released. While earnings saw a slight increase, year-over-year spending fell during the March–April pay talks, indicating cautious spending behavior among Japanese consumers. This morning we had the Summary of Opinions from the Bank of Japan.

Bank of Japan Summary of Opinions

• Bank of Japan Summary of Opinions at the Monetary Policy Meeting on July 30 and 31:
• Several members see economic activity and prices developing in line with BOJ outlook.
• Some believe there is room to raise the “significantly low” policy rate, citing negative real rates at 25-year lows.
• Opinions are divided on timing: some members want more data, while others are ready to move now.
• There is agreement on the need for a gradual approach to avoid rapid rate hikes.
• 1 member sees the neutral rate of “at least around 1%” as a medium-term goal.
• Plans to reduce JGB purchases are viewed as promoting market function, not as tightening.
• Careful monitoring of the JGB market is needed as BOJ cuts purchases.
• Government representatives stress the need for clear communication on policy changes.
• Ongoing debate on the sustainability of the inflation/wage growth cycle continues.

USD/JPY Live Chart