How low can the Japanese yen plunge?

The USD/JPY price continued its bullish trend on Wednesday as investors focused on the strong recovery of the American economy. The pair also continued its recovery as the divergence between the Federal Reserve and the Bank of Japan (BoJ) continued. It is trading at 144.75, meaning that it has surged by more than 26% this year.

BoJ and Fed divergence

The USD/JPY price has been in a strong bullish trend in the past few months as investors reacted to the actions by the Federal Reserve and the Bank of Japan. The Fed has been one of the most hawkish central banks this year. 

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Last week, the bank decided to hike interest rates by 300 basis points this year. And the most recent economic data point to more hikes in the coming months. For example, data published by the Conference Board on Tuesday showed that the country’s consumer confidence rose for the second straight month to 108. The increase was better than what most analysts were expecting. 

Consumer confidence is an important data because of the role that American consumers play on the economy. They are the biggest contributors to the country’s GDP. As such, more confident consumers lead to more spending, which is a positive factor. Another data showed that new home sales rose by more than 20% in August. 

Meanwhile, as we wrote in a previous forex news, the Bank of Japan (BoJ) has maintained a more dovish  tone. While most central banks have hiked interest rates, the bank has decided to leave rates at the negative area in a bid to boost growth. 

Last week, the bank attempted to boost the Japanese yen by announcing forex intervention. However, with interest rates low, analysts believe that the bank will not intervene even as the currency falls to 145.

USD/JPY forecast

The daily chart shows that the USD/JPY price has been in a strong bullish trend in the past few months. In this period, the pair has jumped above all moving averages. It has also remained close to the “line in the sand” level at 145. 

At the same time, the Awesome Oscillator has formed a bearish divergence pattern. Therefore, there is a likelihood that the pair will have a pullback in the coming days. If this happens, the key level to watch will be at 140.