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USDJPY Price Analysis: Dollar Crushes the Yen on BoJ’s Policies

Simon Mugo trader
Updated 12 Oct 2022

Trade the USDJPY pair Your capital is at risk

Key points:

  • The USDJPY price had risen to a 24-year high and was headed higher.
  • The dollar was crushing the yen due to the different monetary policies.
  • The BoJ has reiterated its commitment to not raising interest rates.

The USDJPY currency pair was trading almost 100 pips higher as the US dollar crushed the Japanese yen, driven by the monetary policy deviation between the two countries. The Federal Reserve is expected to hike rates further at its November meeting, while the Bank of Japan remains dovish.

The BoJ Governor Haruhiko Kuroda said after the central bank’s last monetary policy meeting that he does not see the need to change the bank’s monetary policy stance in the next two to three years. However, the BoJ’s dovish stance has made the Japanese yen the worst-performing G10 currency this year as it continues to lose ground against its peers.

Also read: How The Forex Economic Calendar Can Improve Your Trading.

Yesterday, US Treasury Secretary Janet Yellen said that the dollar’s current strength against other currencies is expected given that the Fed is the most aggressive central bank right now as others lag behind it in raising interest rates to combat rising inflation. The comments were interpreted as supportive of the Fed’s aggressive rate hikes.

The Japanese yen has a lifeline in that the Bank of Japan has clarified that it is ready to intervene in the Forex market whenever there is significant volatility to stabilise the yen. The recent rally in the USDJPY pair indicates that the BoJ does not want to keep the pair under a specific price but is keener on lowering volatility in the FX markets.

Earlier today, the monthly US PPI data for September was released, with the headline print coming in at 0.4%, beating analysts' expectations set at 0.2%. Likewise, the core print was in line with expectations at 0.3%. The upbeat PPI data fueled investor expectations of an aggressive Fed rate hike at the November 2, 2022, monetary policy meeting.

According to a Reuters report, BoJ Governor Haruhiko Kuroda said the central bank would maintain its monetary easing until the country achieves its 2% inflation target. Unlike other countries struggling with record-high inflation, Japan’s inflation is still below the BoJ’s 2% target, which is why the bank is maintaining its easy policies.

*This is not investment advice.

The USDJPY price chart.

USDJPY price chart 12-10-2022
Source: Tradingview

The USDJPY currency pair was trading up 98.4 pips (0.67%) at 146.87 as the dollar rallied against the yen.

Simon has over six years of professional trading experience across FX, commodities and equities. He has a strong passion for financial markets and is particularly focused on price action trading