USDJPY has accelerated its recovery towards the 148 level as the Bank of Japan stated that there will be no interest rate hikes at this time of market instability.According to the BoJ Deputy Governor,
their stance on interest rates will “obviously” change if market volatility affects the country’s economic and price outlook, risk assessment, and the likelihood of achieving the 2% inflation target.
The BoJ’s rate hike last week, preceded by its intervention in July, has forced investors to exit one of the most popular carry trades.A carry trade involves borrowing money in a currency with a low interest rate (e.g. JPY) and investing it in a currency with a higher interest rate (e.g. USD) to profit from the difference.
This unwinding has coincided with the potential prospect of a recession in the U.S., leading to a global sell-off in financial markets.
On Monday, August 5th, Japan’s leading stock index – Nikkei 225 has fallen ~12.40% while the
JPY has strengthened ~1.67%.From a technical perspective, the 148 level may be the key resistance/potential target for the pair’s bulls. The Relative Strength Index is approaching the neutral zone (70 – overbought).4 major simple moving averages are above the current price level, emphasizing the prevailing bearish trend.More By This Author:This Week: US500 Earnings Highlights For Key Stocks In August This Week: Crucial Week For Fed, BOE, BoJ, US Jobs & AI EarningsUSDJPY Rebounds Ahead Of US PCE And BoJ Policy Meeting
