Japanese yen slide to continue in April

The USD/JPY pair tilted upwards on Friday as the Japanese yen sell-off accelerated. It is trading at 122.60, which is close to its year-to-date high of 125.

Japanese yen sell-off

The Japanese yen has been in a major sell-off in the past few months and is currently sitting near its lowest level since 2015. It has fallen by about 20% from its lowest level in 2021.

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This weakness is mostly because of the policies being implemented by the Bank of Japan. In the past few months, the BOJ has remained adamant that it will maintain its relatively dovish stance even as other central banks hike.

In its March meeting, the BOJ left interest rates unchanged and pledged to maintain its quantitative easing policy. For one, while Japan has one of the lowest unemployment rate, its inflation has been stubbornly low even as the cost of energy rises. 

The most recent data showed that Japan’s inflation was below 2%. This is sharply lower than what is happening in the US, where inflation has risen to over 8%. The Eurozone inflation has also risen to almost 7%.

Japan has defied Philip’s curve for a number of reasons. For example, it has an elderly population that is mostly focused on savings. Also, the country’s consumers are extremely price-sensitive, which makes it difficult for sellers to raise prices.

The USD/JPY pair has also risen sharply because of the fact that the Japanese economy is set to have a slower recovery than other countries. 

Data published by the BOJ showed that the Tankan large manufacturers index declined from 17 to 14 in the first quarter. In the same period, the large non-manufacturers index fell from 10 to 9. Other sub-indices if manufacturers and non-manufacturers also underperformed.

USD/JPY forecast

The weekly chart shows that the USD/JPY pair has been in a spectacular upward trend in the past few years. It has dropped from about 99 in 2015 to the current 122. This trend accelerated when the pair moved above the descending trendline shown in purple.

The pair has also moved above the 25-day and 50-day moving averages. It is also approaching the important resistance level at 125. Therefore, there is a likelihood that the bullish trend will continue in the near term as bulls target the important resistance at 125.84.

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