The USDJPY currency pair has been trading sideways for the past five days as the Japanese yen’s rally ends. The yen had rallied higher against the US dollar from 21 October 2022, when the currency pair peaked, pushing the pair lower.
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Since then, the yen has gained significant ground against the US dollar, primarily driven by investor expectations of a change in the Federal Reserve’s monetary policy stance from hawkish to dovish, putting an end to the aggressive rate hikes.
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Before the October peak, the yen was the biggest loser among G20 currencies as the Bank of Japan refused to hike interest rates along with other leading central banks, citing the need to support the Japanese economy, whose inflation was still below the bank’s 2% target.
The BoJ today reiterated its position on easy money policies to support the country’s economy despite mounting expectations of a shift towards more hawkish policies. However, the sideways trading action witnessed in the USDJPY currency pair indicates the market’s indecision about the pair.
However, most trading ranges are usually followed by a rally higher or a plunge lower, which we could get later this week after the Federal Reserve announces its interest rate decision.
The US dollar is likely to rally higher against the Japanese yen after the Fed rate hike scheduled for Wednesday, December 14, 2022, mainly because of the BoJ’s policy stance.
Other currencies, such as the euro and the British pound, have rallied against the dollar as their central banks hike interest rates, which is not the case for the Japanese yen.
Analysts will watch the US dollar closely to see its reaction to the multiple releases from the US docket due out this week, including a critical inflation report scheduled for tomorrow and a retail sales report due on Friday.
Meanwhile, traders will watch the Bank of Japan to see its reaction to the price movements likely triggered by Wednesday’s FOMC interest rate decision.
*This is not investment advice.
The USDJPY price chart
The USDJPY price chart traded sideways for the fifth day as the yen’s rally ran out of steam.
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