USD/JPY price analysis: Bank of Japan decision

Key points

• USD/JPY has fallen almost 1000 pips from mid-November before rebounding slightly to 143.00
• BoJ held interest rates negative, dispelling rumors of a hike
• Changing interest rates will be a key driver of USD/JPY's range in 2024

USD/JPY's fall from highs

USD/JPY has been a roller coaster for traders over the past few years, with particularly sharp moves in recent weeks. This volatility has been driven primarily from speculation on the possibility of a reversal in monetary policy in the US and Japan.

In November, USD/JPY soared through 151.00, a level not consistently seen for 30 years since the early 1990s. This threshold represents a psychological and technical barrier, often resulting in heightened trading activity. From mid-November to mid-December, the dollar experienced a significant drop of around 1000 pips from its high, only to rebound slightly thereafter. This range is still on the higher end of its historical prices, currently settling around 143.00.

Historically, the USD/JPY has traded within a range between 80.00 and 130.00 for nearly two decades prior to 2022. However, in the last two years, the range has shifted upwards, primarily oscillating between 130.00 and 150.00. This shift suggests a new trading environment that may offer fresh opportunities for those who adapt their strategies accordingly.

Recent news from the BoJ

The Bank of Japan (BOJ) plays a pivotal role in the yen's valuation. Unlike the US Federal Reserve, which raised interest rates to combat inflation post-pandemic, the BOJ has maintained its rates at negative levels since 2016, with no hikes since 2007. This divergence in monetary policy has been a key driver of the USD/JPY pair's direction. Traders often look to central bank decisions and statements for clues on future movements, making it essential to stay abreast of these developments.

Recent speculation around a potential rate hike by the BOJ stirred the market, leading to a notable appreciation of the yen. However, the anticipation was met with no indication of change in the BOJ's policy, causing the yen to relinquish some of its gains. Traders must be vigilant, as rumors can fuel short-term moves that may not align with longer-term trends.

What's next for USD/JPY

Looking forward, the yen's fate may hinge on the divergence between US and Japanese interest rates. If US rates decrease, the yen could appreciate further. Conversely, should the Fed's cuts be shallower than expected, the dollar may regain strength. Traders should also consider that even if the BOJ moves away from negative rates, historical data suggests that Japanese rates are unlikely to reach the levels seen in the US.

As a result of this landscape, USD/JPY has become one of the more volatile major currency pairs, presenting both opportunities and risks. Traders must monitor economic data releases and central bank meetings diligently. The interplay between US and Japanese monetary policies will likely continue to be a critical factor in the pair's trajectory. As we look to upcoming central bank meetings and economic indicators, traders should remain nimble, ready to adapt their strategies to capitalize on the dynamic forex landscape.

How to trade USD/JPY

1. Open an account to get started, or practice on a demo account
2. Choose your forex trading platform
3. Open and close positions on USDUSD/JPY

Trading forex requires an account with a forex provider like IG. Many traders also watch major forex pairs like EUR/USD and GBP/USD, which can be found in IG's platform under the 'Major' pairs tab, for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.

You can help develop your forex trading strategies using resources like IG’s YouTube channel. Our curated playlists can help you stay up to date on current markets and understanding key terms. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.

Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.