The yen continues to experience the most dramatic fall since 1998. On Thursday night, JPY collapsed against the dollar to almost 147. It was pushed to a new low by a dovish speech by the head of the Bank of Japan.
The Japanese currency is once again caught in a perfect storm. On the one hand, the yen is now under strong pressure from expectations of more hawkish actions from the Federal Reserve, and on the other hand, the usual dovish mantras of the BOJ.
Yesterday, the JPY fell against the greenback to a new 24-year low at 146.80. The release of the US producer price index for September weighed on the dollar-yen pair.
The statistics did not justify the forecasts of economists, who expected an increase of 0.2%. In reality, the PPI rose more - by 0.4%, which increased traders' fears about a more sustainable growth in consumer prices.
US inflation data for last month will be released today. The consumer price index for September is expected to show a slight slowdown (to 8.1% year on year).
However, let's not forget about the unexpected turn of events last month, when the statistics for August turned out to be worse than expected. This significantly strengthened the hawkish determination of the Fed and caused a jump in the USD/JPY pair.
"If the US CPI rises above economists' estimate again, selling of the yen could pick up, making intervention more likely," said Yoshifumi Takechi, an analyst.
Recall that in September the Japanese government intervened in the market for the first time since 1998, when the JPY fell against the dollar to 145.90.
Yesterday, the yen fell well below this red line and set a new anti-record, but there was no intervention. Now the Japanese authorities have chosen a different tactic, focusing not on a certain price threshold, but on the speed of the JPY fall.
This was announced on Wednesday morning by Japanese Finance Minister Shunichi Suzuki, and a little later his words were confirmed by BOJ Governor Haruhiko Kuroda.
In addition, Kuroda stressed yesterday that the widespread growth of the dollar is a global problem that needs to be addressed together.
According to Kuroda, many economies have already come to an understanding of this and are ready to discuss this issue at the meetings of the G20 and the International Monetary Fund, which are taking place these days in Washington.
In fact, Kuroda hinted at the possibility of a coordinated intervention against the dollar, but the market ignored his threat.
After Kuroda's speech, the US currency, on the contrary, received an even more powerful impetus. By trying to support the yen, the official only made things worse as he couldn't help but make dovish comments.
The head of the BOJ once again confirmed his commitment to an ultra-soft monetary policy and keeping interest rates at an ultra-low level.
The main arguments in favor of a dovish strategy are still the same: the Japanese economy has not yet recovered to its pre-pandemic levels, and inflation in the country is still relatively modest compared to the stalemate in the West.
Kuroda's comment once again convinced traders that the discrepancies in the monetary policy of the Fed and the BOJ will grow, especially since now the markets expect an increase in rates in America by at least 150 bps by the first quarter of 2023.
The Fed will continue its aggressive fight against inflation, and this will help further strengthen the already strong dollar this year.
USD/JPY nowOn Thursday night, the yen hit a low of 146.98 against the dollar, but USD/JPY sank slightly in the morning. At the time of writing, the asset fluctuated within a narrow range of 146.67-146.90.
Amid the expectation of a key inflation report in the US, the USD/JPY pair remains upward, but fears of a potential intervention by the BOJ are forcing traders to be cautious.
In any case, analysts predict increased volatility of the asset in today's trading. The main target for the bulls will be the level of 147, while the bears need to fall below 146.66 to seize the initiative.