USD/JPY: Is it safe to buy the Japanese yen at its six-year low?

The USD/JPY pair continued its bullish momentum on Wednesday morning as Japan’s power crisis escalated. It is trading at 121.04, which is the highest it has been since 2016. Yen has crashed by over 19% from its lowest level in 2020. Other pairs like GBP/JPY and EUR/JPY have also maintained their bullish trend.

Japan power crisis

The USD/JPY pair has maintained a bullish trend in the past few months as the overall divergence between the Federal Reserve and the Bank of Japan (BOJ) widens. Last week, the Fed decided to hike interest rates and warn that it will implement more hikes this year.

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The BOJ also met last week and sent a different picture than the Fed. It left interest rates unchanged and continued with its asset purchases. It also vowed to ease more if the Covid-19 crisis escalates.

Japan is a relatively different country than the US and the UK. For example, it has relatively low consumer inflation than most countries because of its aging population. Also, most people are price-sensitive, which makes companies to avoid jerking prices. It also has one of the lowest unemployment rate, meaning that it has defied the so-called Philip’s Curve.

In addition to the dovish BOJ, the USD/JPY pair is soaring because of the ongoing energy crisis in the country. The country’s worst energy crisis in a decade happened after a major earthquake stretched the power grid. And on Tuesday, a blast of frigid weather in Japan helped to escalate the situation.

Therefore, companies and households have been asked to limit their power usage in a bid to reduce forced power rationing. As a result, this will likely lead to a slower economic recovery, which will prevent the BOJ from tightening.

USD/JPY forecast

The daily chart shows that the USD/JPY pair has been in a strong bullish trend in the past few months, The pair managed to cross the important resistance level at 116.83, which was the previous year-to-date high. It has also risen above all moving averages.

At the same time, oscillators like the Relative Strength Index (RSI) and the MACD continued to rally. Therefore, the USDJPY price will likely keep rising in the near term as bulls target the next key resistance level at125p.

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