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Trends & Analysis
News

Crude oil breaches $70 amid geopolitical concerns

News

Will silver soar to $35?

News

Nike’s shares slide despite earnings beat

News

GBP/USD holds close to multi-year highs

News

Is Apple approaching a major move?

News

US dollar dips on inflation data, Yen surges

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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