**Source: Mitrade | Original Author: Ouyang Yuanzun**
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# USD/JPY Analysis: Yen Hits New Low, BoJ Watch Intensifies
The Japanese yen recently tumbled to new long-term lows against the US dollar, sending shockwaves through currency markets and sparking urgent discussions about next moves from the Bank of Japan (BoJ). The USD/JPY pair’s relentless climb, punctuated by periodic steep selloffs of the yen, is capturing the attention of traders, corporates, and policymakers alike. In this comprehensive analysis, we explore the factors behind the yen’s decline, recent developments in central bank policy, intervention risks, and the key technical and fundamental drivers to watch in the coming weeks.
## Yen Depreciation: A Multiyear Trend Accelerates
Since early 2021, USD/JPY has surged over 50 percent, driven by contrasting economic and monetary policy trajectories between the United States and Japan. Several key factors explain this dramatic move:
– **Divergent Monetary Policy**: While the US Federal Reserve aggressively hiked rates to combat persistent inflation, the Bank of Japan maintained an ultra-loose policy stance, keeping interest rates around zero or below and continuing yield curve control efforts.
– **Global Inflation Dynamics**: Higher global inflation boosted US yields, widening the rate differential and making dollar-denominated assets more attractive.
– **Safe-Haven Flows and Growth Outlooks**: The robust performance of the US economy compared to Japan, as well as the dollar’s traditional role as a safe haven, have reinforced the trend.
By August 1, 2024, USD/JPY soared past 158, renewing concerns about further disorderly moves.
## Recent Market Developments and BoJ Policy Actions
### April-July 2024: BoJ Tightens, Markets Unimpressed
In April, the BoJ surprised markets by slightly raising its target policy rate for the first time in years. However, the move, widely seen as symbolic, failed to meaningfully close the interest rate gap with the US or convince markets that higher Japanese rates were sustainable. Subsequent BoJ meetings, most notably in June and July, saw only cautious language about further tightening.
Key points from recent BoJ actions:
– Maintained low overnight rates, pledging to proceed with caution given tepid Japanese inflation and faltering wage growth.
– Signaled plans to slowly reduce its government bond purchases but stopped short of announcing a timetable for further rate hikes.
– Expressed concern about yen weakness but emphasized that currency values are driven by fundamentals—not a primary focus for monetary policy.
### Stepping Up Verbal Intervention
As the yen tested key psychological levels around 160 to the dollar, Japanese authorities ramped up their verbal intervention efforts. Senior officials at the Ministry of Finance (MoF) issued increasingly explicit warnings against “excessive” and “speculative” moves in the currency. This language was meant to signal a readiness to act in currency markets if volatility became extreme or if the depreciation threatened financial stability.
## Currency Intervention: History, Effectiveness, and Success Odds
Japan famously intervened in the foreign exchange market in the fall of 2022 and spring of 2023 to stem yen declines. These interventions saw the BoJ, acting for the MoF, selling tens of billions of dollars to buy yen. The immediate market reaction was sizable, but the effect faded quickly as the policy divergence persisted.
– **Recent Intervention Record**: In each case, the impact on USD/JPY proved short-lived unless supported by broader changes in yield differentials or risk sentiment.
– **MoF Stance**: Japanese policymakers have reiterated that they will not rule out any options if moves become disorderly, but sustained interventions require massive reserves and coordination with other major central banks for maximum effect.
The 2024 situation resembles previous episodes: unless the BoJ decisively tightens policy to narrow US-Japan yield differentials, solo interventions might again
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