USD/JPY Forecast as the Japanese Yen Meltdown Accelerates

The USD/JPY price soared to the highest point in over 24 years as investors priced in a strong divergence between the Fed and BoJ. As a result, the Japanese yen slipped to 138 against the US dollar, meaning that it has shed over 20% of its value in 2022 alone. This makes it the worst-performing currency in the developed world.

Why has the Japanese yen crashed?

The USD to JPY price has soared as investors price out a wider divergence between the Federal Reserve and the Bank of Japan (BoJ). This divergence will therefore create a substantial gas between Japanese and American interest rates.

The BoJ has maintained a relatively dovish tone this year even as Japan experiences its worst inflation in years. Recent data showed that inflation jumped above 2% for the first time in years. This happened as the cost of fuel and food jumped. 

The weak yen has also contributed to inflation since Japan has now been forced to pay more for these products. While many exporters are benefiting from a weak yen, many companies are being hurt since they have been forced to absorb the difference.

The USD/JPY soared after the strong American consumer inflation data. The numbers revealed that the headline CPI rose to 9.1% in June, the highest level in more than four decades. As such, many investors are now pricing in a situation where the Federal Reserve hikes interest rates by 100 basis points later this month. 

The USD to yen has therefore rose because of a carry trade opportunity. This is a situation where investors borrow from a low-yielding country to a high-yielding one. In this case, they borrow cheap Japanese assets and invest in higher-yielding US assets.

USD/JPY forecast

The hourly chart shows that the USDJPY price has been in a strong bullish trend in the past few days. It managed to move above the key resistance point at 137.76, which was the highest point this year. In addition, the price rose above the 25-period and 50-period moving averages while the Relative Strength Index (RSI) has jumped. 

Therefore, the pair will likely keep rising as investors target the key resistance point at 138.75, which is along the third resistance of the standard pivot points. A drop below 137.7 will invalidate the bullish view.