USD/JPY price analysis: is Japanese yen about to crash?

Key points

• Yen is down more than 600 pips against US dollar in 2024
• USD/JPY is less than 500 pips from 30-year highs hit last year
• Comparing economic growth between US and Japan could give insight into USD/JPY's future

US dollar has demonstrated considerable strength against most major currencies, with the yen experiencing particular weakness. This dynamic has been punctuated by instances where the USD/JPY pair approached extreme levels. By the end of 2023, there were signs that the yen might recover some ground against the dollar, potentially fueled by a speculated shift in monetary policy from Japan's central bank, which hinted at an interest rate increase for the first time in over a decade.

However, despite these expectations, the yen has continued to falter in 2024, losing almost 5% in value against the dollar in just a few weeks. The yen's weakness has persisted even as the U.S. Federal Reserve (the Fed) contemplates rate cuts, which would typically weaken the U.S. dollar.

USD/JPY price history

Bank of Japan's recent stance

The Bank of Japan (BoJ) maintained its negative interest rates at the beginning of the year, while the U.S. interest rates will likely remain significantly higher after next week's meeting. Historically, Japan has not raised rates since the 2008 financial crisis and remains far from the positive interest rates seen in the 1980s and 1990s. In contrast, the US has experienced rates above 5%, with some market veterans recalling periods of 6-8%.

The market's skepticism about Japan's economic strength is reflected in its reluctance to buy into the potential for Japanese rate hikes. The US economy, on the other hand, has shown resilience with consistent GDP growth post-pandemic, outperforming Japan's near-zero growth rate. This disparity reinforces the dollar's strength against the yen.

For traders, these developments underscore the importance of staying informed about global economic indicators and central bank policies. The USD/JPY pair's volatility offers both risks and opportunities. A prudent approach involves analyzing interest rate differentials, economic data, and market sentiment to make informed decisions.

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.