USD/JPY forecast: how low can the Japanese yen crash?

The USD/JPY price remained in an ascending pace as the recent Bank of Japan (BoJ) interventions failed to convince investors. It rose to a high of 149.26 which was slightly below this month’s high of 151. It has surged by about 30% this year.

BoJ interventions fail

One of the biggest recent forex news is about the collapse of the Japanese yen. The currency has plunged by 30% against the US dollar because of the divergence between the Bank of Japan (BOJ) and the Federal Reserve.

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In the United States, the Federal Reserve has hiked interest rates by 300 basis points this year. And analysts polled by Reuters expect that the bank will hike by additional 125 basis points in November and December.

The BoJ, on the other hand, has been one of the most dovish central banks in the world. While other central banks have hiked rates aggressively, the bank has maintained negative rates and continued with its aggressive quantitative easing (QE) policies. The BoJ argues that Japan’s inflation is still transitory and that it will naturally retreat when oil prices retreat.

According to the Financial Times, the BoJ has stepped forex interventions recently. The bank spent about $30 billion in forex interventions last week. This was in addition to the $20 billion that the bank spent to buy Japanese yen in September, as we wrote here. Analysts at Bank of America believe that the BoJ can deliver at least 10 interventions by selling liquid assets.

Still, analysts believe that the USD/JPY price will continue rising as long as the spread between Japan’s and US interest rates remains significantly wide. The BoJ is also buying significant bonds through its quantitative easing (QE).

The next key catalyst for the USD/JPY price will be the upcoming US consumer confidence data and the latest US GDP numbers.

USD/JPY forecast

The daily chart shows that the USD/JPY price has been in a strong bullish trend in the past few months. As it rose, the pair managed to move above the 25-day and 50-day moving averages.

It also rose above the important resistance level at 144.98, which was the lowest level on Friday while the Relative Strength Index (RSI) moved below the overbought level.

Therefore, the pair will likely continue rising in the coming weeks unless the Bank of Japan makes substantial interest rate hikes. If this happens, the next key level to watch will be at 152.