Will the Japanese yen crash continue in May?

The USD/JPY pair continued its bullish trend in April as the collapse of the Japanese yen continued. The pair is trading at 130.21, which is the highest it has been since 2002. This price was significantly higher than where it started the year at. It has also risen by over 26% from its lowest point in 2021.

Japanese yen crash continues

The USD/JPY, EUR/JPY, and GBP/USD pairs continued their bullish trend in April as worries about the Japanese economy rose. 

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The main reason for the crash of the Japanese yen is the ongoing dovish tone by the Bank of Japan (BOJ). In its interest rate decision last week, the BOJ decided to leave interest rates unchanged at -0.10%, where they have been since 2016.

The BOJ also announced that it will continue with its asset purchases program that has pushed its balance sheet to over $8 trillion. 

This sentiment means that the BOJ is one of the most dovish central banks in the G7. In contrast, the Federal Reserve is expected to continue with its rate hikes this week. The Bank of England (BOE) has already hiked interest rates three times while the Bank of Canada (BOC) raised rates by 0.50%.

The BOJ is in no hurry to hike interest rates because of the country’s sluggish inflation. While inflation in most countries has risen in most countries, Japan has been an exception. The headline CPI is hovering at around 1%, which is still below the BOJ target of 2%. Therefore, the BOJ believes that hiking interest rates now will lead to more deflation.

Still, there are worries about how high the USD/JPY will keep rising. For one, the weak yen is affecting the savings of most people in Japan. It is also hurting many small companies that import products.

USD/JPY forecast

The USD/JPY pair has been in a strong bullish trend. The weekly chart shows that the pair has risen sharply in the past 10 straight weeks. Along the way, it has risen above the important resistance levels at 118.71 and 125.86, which were the highest levels in November 2016 and June 2015, respectively.

The pair remains above the 25-week and 50-week moving averages while the MACD and the Relative Strength Index (RSI) have moved to the overbought level. Therefore, there is a likelihood that the pair will have a pullback in May.

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