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CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Market update: Japanese yen gains again as dollar wilts, BoJ policy in the spotlight

Amid growing speculation of a Bank of Japan policy shift and Federal Reserve rate cuts, the Japanese yen sees significant gains against the US dollar.

Source: Bloomberg

The Japanese yen continued its strong gains against the United States dollar on Monday, as the monetary conditions in both Japan and the US align in a way not seen for decades.

Bank of Japan's potential pivot from decades of stimulus

There's a growing market consensus that the Bank of Japan may be ready to scale back some of the extraordinary monetary stimulus it has implemented since the early 1990s, aimed at stimulating domestic pricing pressures. Finally, there are signs of these pressures, with a possibility they might sustain as wages increase.

Japan has maintained negative short-term interest rates for years, alongside a substantial central bank asset purchasing programme. The yen has traditionally lagged behind its peers in yield terms and has often been bid down as a result.

BoJ's ETF market absence: a signal of change?

Reports on Monday indicated that the BoJ was absent from the exchange-traded-fund market, perhaps signalling a pullback from these extensive stimulus efforts. However, given the Nikkei's current levels, it may be that the BoJ has deemed further assistance unnecessary.

The BoJ is set to meet for its next monetary policy decision on 19 March. It's worth noting that the market has prematurely anticipated a policy shift before, only to be disappointed. However, this time the circumstances might truly be different.

Fed's rate cut expectations and the dollar's dilemma

Regarding the dollar, the prevailing expectation that the Federal Reserve will cut rates in the second half of the year continues to dominate market sentiment, further encouraged by recent remarks from Chair Jerome Powell. This outlook has generally weakened the greenback, but its struggle against the yen is notably pronounced.

The forthcoming US inflation data on Tuesday represents the week's primary short-term risk event. Any unexpected increase could cause dollar sellers to hesitate, but anything less is likely to extend the dollar's decline.

USD/JPY technical analysis

February's trading activity saw USD/JPY drop below the medium-term uptrend that had been established since 2 January.

The decline on 29 February beneath this trend line signalled further significant drops, with dollar sellers now challenging the second Fibonacci retracement of the rise to mid-February's highs from early January's lows, located at 146.84. It will be intriguing to observe whether this level holds by the close of Monday's trading.

Should this level not hold, the focus will shift to the 200-day moving average at 146.023, followed by another retracement level at 145.586.

For a market turnaround, bulls must overcome resistance at the former range base of 149.079. However, there's little indication they can achieve this, with any temporary halt in dollar depreciation likely serving merely as a consolidation phase for bearish traders.

Source: TradingView

This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.


This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

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