Summary:
On Tuesday, the yen fell from a three-week high as carry trades unwound aggressively. Strategists warn the unwinding might not be over yet.
The yen retreated from its three-week high on Tuesday after carry trades
began aggressively unwinding earlier this month. Strategists said the
unravelling could be far from over.
Throughout most of 2024, the yen has experienced sharp volatility, weakening to levels not seen since 1986, prompting the Bank of Japan (BOJ) to intervene in July to support the currency.
The BOJ's actions align with findings from new research presented at this year's Jackson Hole conference, showing that central bank communication is most effective when words are matched with decisive action.
With a measure of calm now restored, Governor Ueda reiterated a hawkish stance, telling parliament on Friday that the BOJ will continue raising rates to levels considered neutral.
A BNY strategist noted that the dollar's weakness is expected to persist against several major currencies through the end of the year, with the yen likely to reach the 130 range by then.
Similarly, an SMBC economist predicts that the yen will trade around 145 to the dollar this year before rising to about 138 or even 130 by the end of 2025, with "some high volatility."
Bullish MACD divergence points to further gains ahead for the yen with initial support around 146.7 per dollar. The uptrend on a longer horizon is underpinned by 200 SMA.
Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
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