The Japanese yen was in focus last week due to concerns about its future. The USD/JPY currency pair initially rose to 160.17 before dropping to 152.93 as the Bank of Japan injected over $33 billion to prevent a collapse.
The Japanese yen has been the worst-performing currency in the developed world, falling by over 53% since March 2020 and over 105% since November 2011. In comparison, the Turkish lira has also faced a significant decline, dropping by more than 2,200% from its 2011 high.
There are worries about whether the Japanese yen will continue to decline like the Turkish lira. Japan’s import-dependent economy has led to inflation, with wages rising for the first time in years. The Bank of Japan has been hesitant to raise interest rates, fearing increased debt repayment costs.
Japan’s massive debt and demographic challenges make it difficult for the country to recover. As a result, it is expected that the Japanese yen will continue to weaken against the US dollar. Interventions by the Bank of Japan are likely to be short-term, as seen in 2022.
It is uncertain whether the Japanese yen will follow the same path as the Turkish lira. The Turkish lira’s collapse was due to unconventional monetary policies by the Central Bank of the Republic of Turkey. Despite interest rate hikes, confidence in the currency remains low.
Japan’s only hope may lie in its substantial foreign exchange reserves, which could be used to support the yen. A sharp decline in inflation leading to a rate cut by the Federal Reserve could also narrow the gap between the US dollar and the Japanese yen.
In technical analysis, the USD/JPY currency pair is currently trading within a bearish channel on the hourly chart. The 14-hour RSI suggests further downside potential. In the long term, the currency pair is within an ascending channel on the daily chart, with the 14-day RSI indicating potential pullbacks.
Overall, the outlook for the Japanese yen remains uncertain, with various factors influencing its future direction. Trading the USD/JPY pair requires careful consideration of technical and fundamental analysis.