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Yen, USD/JPY Analysis

  • Japanese finance minister Suzuki warns against currency volatility, tolerates depreciation for now
  • Yen[1] sell-off could slow in the short-term as RSI breaches extreme level
  • IG Client Sentiment[2] heavily one-sided: 76% of USD/JPY[3] traders are short
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Japanese Yen Depreciation Gains Momentum

The Yen has continued its impressive decline against a number of G7 currencies which may be set to continue. The Yen was naturally on the back foot due to a massively supportive Bank of Japan[4] (BoJ) continuing to provide stimulus and ruling out any chance of a rate hike in the near future.

Such a stance contrasts what we are witnessing from other major central banks like the Fed[5] and the Bank of England[6] (BoE) that have already begun the rate[7] hiking cycle with many more priced in before the end of this year. Even the notoriously dovish European Central Bank[8] (ECB) has markets anticipating 50 basis points in hiking before the end of 2022 as inflation runs rampant. In contrast, Japanese inflation (0.9%) is nowhere near that of the US and UK, meaning there is absolutely no need to raise rates anytime soon.

The charts below show how poorly the yen has fared across the board during March.

Japanese Yen vs GBP[9], CAD[10], USD[11] and AUD[12] (Daily Charts)

Japanese Yen vs major currencies

Source: TradingView, prepared by Richard Snow[13]

Finance Minister Suzuki Raises Concern with Currency Moves

The Japanese finance minister Shunichi Suzuki expressed concern around the recent market moves which were “quite large” and re-affirmed that the government will make use of the covid reserve fund when necessary, in the

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