Yen Conversion to Improve as BoJ Evaluates Policy Shift


Yen Conversion to Improve as BoJ Evaluates Policy Shift

The Japanese Yen (JPY) is about to experience a resurgence in strength against the US Dollar. Meanwhile, the Bank of Japan (BoJ) is deliberating about abandoning its yield curve control (YCC) policy. Governor Ueda’s recent dovish communications have caused a delay in market expectations for a YCC change. However, analysts contend that the policy has reached its expiration date. With global yields on the decline and diminishing inflation risks, the BoJ might take advantage of the situation to normalize its policy. Potentially, that could result in a decline in USD/JPY exchange rates and improve Yen conversion prospects.

The recent rally in USD/JPY, which saw the exchange rate reach a six-month high of 140, is expected to reverse course. Economists at UBS predict that the strength of the US Dollar will not endure, leading to a decline in USD/JPY. They anticipate that by the end of the year, the currency pair will reach the 122 level, reflecting a potential reversal in Yen’s weakness and a shift in market dynamics.

BoJ Poised to Normalize Policy as Positive Economic Data Emerges

With encouraging economic data on hand, the Bank of Japan (BoJ) appears ready to normalize its policy. That could potentially lead to a rise in the Japanese Yen coin. Positive economic indicators strengthen the case for the BoJ to adjust its current yield-curve control regime, possibly between July and October. According to analysts, there is speculation that the central bank may increase the yield target for the 10-year Japan government bond (JGB) from the current 0.5% to a minimum of 0.75%. If this occurs, it could potentially lead to the strengthening of the Yen currency.

UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang suggest that the continuous upward trend of USD/JPY could potentially propel the currency pair above the 141.00 level in the near future. A breach of this level shouldn’t occur imminently. However, analysts believe that a continuation of the current trend could lead to further gains for the Yen coin. However, they caution that resistance levels at 141.55 and 142.00 could impede further upward movement.

USD/JPY Retreats from Six-Month High as Profit-Taking Sets In

Following three weeks of consecutive gains and a breakthrough above the psychological barrier at 140, USD/JPY has experienced a slight retreat. Profit-taking by traders has been triggered by overbought conditions on the daily chart. The reversal signals are yet to be confirmed. Still, a return and close below the former strong barriers at 140.00/139.58 could weaken the near-term structure. Furthermore, the rising 10-day moving average is at 138.80. It could potentially result in a deeper pullback toward levels around 138.08 and 137.20.

The recent market dynamics indicate that Yen conversion is likely to improve against the US Dollar. Therefore, there is a possibility of the Bank of Japan abandoning its yield curve control policy.  Currently, the positive economic data supports policy normalization. Besides that, technical factors indicate a potential reversal in the USD/JPY rally, all pointing toward a shifting landscape in the currency markets. Traders and investors will closely monitor these factors to gauge the future direction of USD/JPY.

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