The Japanese Yen Has Started to Rise Sharply — Here's Why

[Ben Graham]

Just last week, the market first heard expressions of dissatisfaction from Japanese politicians who were unhappy with the current exchange rate of the yen. Today, Japan's Finance Minister Satsuki Katayama issued another round of verbal warnings regarding currency movements, once again emphasizing the serious need for urgent action.

"I'm observing one-sided and rapid movements in the foreign exchange market," Katayama told reporters on Tuesday. "Our stance on assessing these developments with a high degree of urgency remains unchanged," she added. These statements continue to exert some pressure on the currency market, making speculators more cautious in their bets against the Japanese currency. However, many experts remain skeptical about the effectiveness of verbal interventions.

History shows that such measures can only have a short-term impact unless supported by real actions, such as direct foreign exchange interventions. However, carrying out such interventions involves certain risks and political complications, especially amid a growing trade imbalance and pressure from other countries.

Moreover, the fundamental factors determining the yen's long-term exchange rate remain unchanged. Low interest rates in Japan continue to weigh on the yen, making it less attractive to investors. Therefore, to stabilize the situation, comprehensive measures are needed — including not only verbal interventions but also changes in monetary policy and structural reforms in the economy.

Japan last intervened in the foreign exchange market in July of last year, when the yen traded around 160 per dollar. Katayama noted that on Friday she issued a stern warning after observing sharp fluctuations in exchange rates over the previous two days. It should be recalled that the Japanese currency weakened by almost 3 yen against the dollar immediately after the Bank of Japan decided to keep interest rates unchanged late last week.

Although Bank of Japan Governor Kazuo Ueda hinted at an approaching timeline for a rate hike during his post-meeting press conference on Thursday, markets did not seem convinced, which led to a decline in the yen's value.

As for the current technical picture of USD/JPY, buyers need to break through the nearest resistance level at 154.30. This would allow them to target 154.77, above which it will be quite difficult to advance. The farthest target lies in the 155.25 level. In case of a decline, bears will try to regain control around 153.80. If they succeed, a breakout of this range will deal a serious blow to the bulls' positions and push USD/JPY down to a minimum of 153.45, with the potential to reach 153.10.

The material has been provided by InstaForex Company - www.instaforex.com