The USD/JPY price spiked on Wednesday as investors focused on the divergence between the Federal Reserve and the Bank of Japan. It soared to a high of 146.38, which was the highest level on record. The Japanese yen has crashed by more than 30% in the past 12 months. In the same period, the Nikkei 225 index has plummeted by over 14% in the same period.
Will the BoJ intervene?
The Japanese yen has been in a strong bearish trend in the past few months. This decline happened because of the ongoing divergence between the Bank of Japan (BoJ) and the Federal Reserve. The BoJ has been the most dovish central bank in the developed world.
While the Federal Reserve has hiked interest rates by 300 basis points this year, the BoJ has taken the opposite view. The bank has refused to hike interest rates and maintained negative rates in a bid to stimulate the economy.
The BoJ has warned that the current inflation level is not sustainable and is mostly caused by temporary factors like high oil prices. As a result, the USD/JPY price has soared due to the strong US dollar. At the same time, the pair has become popular among carry trade investors who borrow in Japan and invest in the high-yielding US dollar.
Therefore, analysts are wondering whether the Bank of Japan will intervene again. The bank intervened in September but those actions had minimal impact on the Japanese yen. It did that by pledging to buy the yen for the first time since 1998.
A weaker yen has benefited some companies and severely hurt many more. For example, companies that deal more with exports are making a killing in yen terms. Those that import are seeing a substantial rise in costs. Analysts believe that only high-interest rates and QT could save the yen now.
The USD to JPY price has been in a strong bullish trend in the past few months. During this period, the pair has moved above all moving averages. It has also risen above the important resistance level at 139.36 and 144.97. The Relative Strength Index (RSI) and the Stochastic Oscillator have moved to the overbought level.
For now, the USD/JPY price will likely continue rising as bulls target the next psychological level at 150. A drop below the support at 144 will invalidate the bearish view. For a more updated USD/JPY forecast, subscribe to InvestingCube’s S&R indicator.