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Trends & Analysis
News

PepsiCo posts earnings beat, but misses on sales

News

Crude oil spikes after US inventories data

News

Risks on the horizon for the S&P 500?

News

GBP/USD retreats after hitting 1-month high

News

US dollar recovers from last week’s losses

News

Should you own Meta Platforms or Alphabet?

Asset Watch

Is it time to buy the JPY?

Thursday, March 21, 2024

It was a monumental shift for the Bank of Japan (BOJ) on Mar. 18, as the notoriously dovish central bank hiked interest rates for the first time in 17 years. As rates soared across other developed markets, the yen languished, meaning the BOJ’s hawkish first step could shift the balance of power in the months and years ahead.
On one hand, the ‘yield gap’ between the U.S. and Japan remains wide because of the former’s inflation fight provided fundamental fuel for the greenback. On the other, the USD/JPY is trading well above its long-term channel, and great dispersions often precede great reversions.
The USD/JPY has surged above its long-term channel, depicted by the two horizontal white lines. Over the last 25-plus years, the currency pair largely traded between 101 and 127, with material outliers reversing over time.

The 20-month moving average has been a reliable predictor of trend shifts. After rising sharply from late 1999 until early 2002, the USD/JPY broke below its 20-month MA and continued its downtrend for another ~three years. Likewise, the 2007 breakdown resulted in a roughly five-year downtrend.

As a result, with the USD/JPY bouncing near the 20-month MA in late 2022 and 2023, traders are still skittish about owning the JPY. However, as 150 has historically been highly overvalued, the next breakdown below the 20-month MA (near 142) could push the USD/JPY back to the 101 to 127 range.

Does the yen offer tremendous value, or will the USD continue its dominance for the rest of 2024?


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