<p>Back in October, the
USD/JPY currency pair was holding at 151.95, which left the yen at its weakest
level against the US dollar in 30 years. </p><p>Unstoppable inflation
called into question the central bank’s view that rising costs were temporary,
and that the economy needed another dose of stimulus. Late in November,
analysts saw little hope interest rates would start rising any time before the
end of Governor Haruhiko’s tenure, in April 2023.</p><p>By the new year,
however, the yen was to see gains of as much as 16% due to the intervention of
the Japanese government in the currency trading market, but also due to the
widespread belief that the Bank of Japan was on course to tightening up its
super-dovish monetary policy. </p><p>On January 3rd 2023 one
<a target=“_blank“ href=“https://www.bloomberg.com/news/articles/2023-01-03/dollar-makes-strong-start-to-2023-after-months-long-slump“ target=“_blank“ rel=“follow“>US dollar would buy you only 129.79 yen</a>, and “The yen’s current level is
significantly undervalued, even after the recent rally”, suggested Rajeev De
Mello of GAMA Asset Management. </p><p>Join us now for a
currency trading adventure, as we track the yen’s progress since late October,
and also try to decide whether or not its downward slide has finally stopped.</p><p>October</p><p>September 22nd, 2022 was
the date the Japanese government said it was going to take the step, which had
last been taken 24 years before, of directly intervening in the forex market to
support its currency. </p><p>The initial attempt
turned out to be a failure, but policymakers followed this up in October by
quietly spending $42.4 billion towards the same end. </p><p>By the end of October,
when a dollar was worth 148.57 yen, analysts like Atsushi Takeda of Itochu
Research Institute felt that “big interventions at the level we’ve seen in
September and October could happen another three to five times”. </p><p>November</p><p>In the second week of
November, <a target=“_blank“ href=“https://www.bloomberg.com/news/articles/2022-11-11/yen-gains-past-140-per-dollar-for-first-time-since-september-laccknib“ target=“_blank“ rel=“follow“>the yen climbed over 5%</a>, which was more than it had done since 2008. The reason
seemed to be an unusually slow US inflation reading, which gave traders hope
the US Federal Reserve would ready itself to slow its rate hikes. </p><p>“It is an important
turning point for the yen”, pronounced Lee Hardman of MUFG at the time. On
November 11th, when the USD/JPY was at 138.78, the yen had still recorded
losses of 17% against the USD for the year due to the Bank of Japan’s (BOJ)
prolonged dovishness.</p><p>Governor Haruhiko
Kuroda of the BOJ had been striving to achieve stable inflation of 2% for ten
years. </p><p>Prices were rising,
however, faster than they had done since 1982, sparked by the high costs of
energy and the months of sluggish yen performance. Processed food in the
country, which is largely imported and therefore vulnerable to yen weakness,
shot up by 6.7% in the first three weeks of November. A stimulus package from
the government, worth $210 billion, had been set in place the previous month to
help out consumers. </p><p>December</p><p>The first day of
December marked the fifth consecutive day of <a target=“_blank“ href=“https://play.google.com/store/apps/details?id=iforexone.clients.android“ target=“_blank“ rel=“follow“>yen gains in the currency trading</a> market, bringing its recovery since October
up to 13%. Later in the month, to analysts’ surprise, the BOJ’s big policy
adjustment arrived. </p><p>The central bank raised
the cap on its ten-year bond yields, which seemed to justify hopes they were
poised to grow more hawkish. The result was a big surge of 4.8% for the yen on
December 21st. </p><p>On that day, when the
yen was trading at 131.93 to the dollar, Amir Anvarzadeh of Asymmetric Advisors
said, “The yen will likely become one of the strongest currencies next
year”. </p><p>Peering Down the Road</p><p>An important reason for
the BOJ’s worries that raising interest rates too early might impede the
economy, is that real wages in the country have been shrinking since April
2022, which has been reducing people’s purchasing power. </p><p>On that score, Japanese
consumers can expect prices on about 2,000 products to climb even more in
February or March this year.</p><p>January 3rd saw the yen
make ground against the Australian dollar (0.4%), the Norwegian krone (0.6%),
and the Canadian dollar too (0.6%). As the new year got underway, Mingze Wu of
StoneX Group wondered “whether the BOJ will be happy with current developments
or will they step in to weaken the yen again”.</p><p>Erik Nelson of Wells
Fargo foresaw a path for the yen to reach 125 to the dollar, and then even to
100, but “this relies on inflation in Japan continuing, growth trajectory
remaining quite strong and BOJ at least providing a little bit more lift in
those nominal yields”. Other analysts believed, in the short term, that the yen
wouldn’t get much stronger than 125 to the USD.</p>
This article was written by ForexLive at www.forexlive.com.