USDJPY Real Time Daily Chart
Recently, JPY has been quite strong. The USDJPY went below 106.00 line downwards on this Monday as a new week started, and went down to 105.79 yen (as of 4:00 UTC on the 5th of August). Last week FOMC decided to cut interest rates by 25 basis points, and then Chairman Mr. Powell warned that he was looking forward to a market rate cut, saying that “this rate cut is not the beginning of a continuous rate cut in the future” and as a result, USD has been repurchased up to 109.30. But from there, USD has been weakened rapidly.
Its trigger was a sudden tweet by Mr. Trump of imposing a 10% sanctions duty from 1st of September on Chinese $300 billion products. With the resurgence of the US-China trade war, which became a ceasefire, and a more serious situation, the financial and commodity markets are moving toward risk aversion, which has led to a drop in US long-term interest rates, leading to a sharp appreciation of JPY.
By the fact that USDJPY dropped below 106.00 level, the next target would be on 105.00, or on the higher level of 104.00 range which was recorded in “flash crash” on this New Year, 3 of January this year. Unlike the past movements of the USDJPY, the movement is also rapid and the volatility tends to be high. With that in mind, according to the current market development where it could move 100 pips in one day, it might move down towards 102.00 level or even 100.00 level depends on the circumstances.
How rate cut in BOJ, Fed, ECB, Australia affects the market
What I am also concerned about is the movement of the BOJ (Bank of Japan). Although there were no policy changes at the last month’s meeting, economists have realized that from June the environment for additional mitigation is coming together. The Fed cut rates, and the ECB is also expected to cut rates at its next meeting. Apart from that, the Reserve Bank of Australia also cut its interest rate at the meeting in July following on June, and the content of the lecture by the central bank president later suggests further rate cut.
If this situation continues, the JPY will tend to be even stronger due to differences in monetary policy stance, and there is a growing view that the Bank of Japan meeting in September will announce some mitigation measures. However, whether the BOJ will move just because it falls below 105.00 remains unclear. Furthermore, it may be possible to save policy changes as the JPY strengthens, like when the JPY breaks 100.00 level.
Pay attention how BOJ’s will decide
In addition, there is a risk that the Trump administration will perceive it as “introducing the JPY’s depreciation”, and it seems that there is a situation where it can not move so easily. However, on the other hand, if the rapid appreciation of the JPY accelerates, it will not stop even if the monetary policy is triggered, just as when USDJPY dropped to the 75.00 level in 2011. We need to keep paying our attention to what kind of decisions the BOJ will make.
In addition, the rapid appreciation of the JPY could lead to a deterioration in corporate performance and could even have an impact on the consumption tax hike from this October in Japan.
The market has entered the “Strong JPY mode” with the sharp decline in stock prices. If it breaks below 105.00 level, it may be repulsed once, but I think the bull energy is limited. Be careful if you are thinking to buy JPY.
The summer heat has been spreading not only on the air, but also on the exchange market.