Yen hits 38-year low vs Dollar; will the fall continue?

The Japanese yen continued to fall from near a 38-year low to the weaker side of 160 against the dollar, leaving markets wary of possible intervention by Japanese authorities to support the currency.

The yen was at 161.093 against the dollar, the weakest since December 1986.

The Yen has fallen about 2.1% this month and 12% so far year against a resilient dollar, as it continues to be hammered by wide interest rate differentials between the U.S. and Japan. That has encouraged investors to use the yen as a funding currency for carry trades.

In a carry trade, an investor borrows in a currency with low interest rates and invests the proceeds in higher-yielding assets.

Still, the yen’s latest slide past the key 160 per dollar level has kept traders nervous over possible intervention from Tokyo, after authorities spent 9.79 trillion yen ($60.94 billion) at the end of April and early May to push the yen up 5% from its then 34-year low of 160.245.

Further, the data release earlier today showed that, Japanese Tokyo Consumer Price Index (CPI) inflation rose to 2.3% over the year ended in June compared to the previous period’s 2.2%. Core Tokyo CPI inflation (headline CPI inflation less volatile food prices) also rose for the same period, ticking up to 2.1% YoY compared to the previous 1.9% and climbing above the median market forecast of 2.0% YoY.

Core-core Tokyo CPI (headline inflation less both food and energy prices) eased slightly in June, cooling to 1.8% YoY compared to the previous 2.2%. With core-core inflation easing and headline Tokyo CPI sticking just above two percent, it is unlikely the Bank of Japan (BoJ) will be bullied into any immediate changes to its current hyper-easy monetary policy stance.

Market said while the risk of intervention has increased, Japanese authorities could be holding out for today release of the U.S. personal consumption expenditures (PCE) price index before entering the market. Still, any intervention would likely have a limited effect.

Technical Outlook: U.S. Dollar

USDJPY continued to trade in an uptrend. The pair traded at 161.190, compared with yesterday’s 0.26 percent gain at 159.8220.

The recent action caused the formation of a long bullish candlestick, further suggesting that the pair is bullish. However, the Index of Relative Power does not support this.

On the upside, huge resistance is seen at 161.3025, just above where the pair could jump to another high at 161.55-161.7525. Otherwise, a breakout failure may indicate 160.75-160.3525

In addition, large swings can be expected until the BOJ intervenes.

Happy Trading!

Commodity Samachar
Learn and Trade with Ease

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