Japanese Yen To Hold Range As Near-Term Rally Tapers Off
Fundamental Forecast for the Japanese Yen: Neutral
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The Japanese yen recouped the losses from earlier this week, with the USD/JPY falling back from a fresh yearly high of 83.96, and the exchange rate may continue to push lower in the days ahead as it carves out a near-term top in February. Nevertheless, the Bank of Japan raised its fundamental assessment for the first time in nine-months after holding the benchmark interest rate at 0.10% earlier this week and said that the “economy is gradually emerging from the current deceleration phase” as the central bank takes unprecedented steps to stimulate growth.
Central bank Governor Masaaki Shirakawa said that “exports and production are showing sign of resuming an uptrend” as the global recovery gathers pace, and went onto say that the recent depreciation in the exchange rate has helped to ease the deterioration in the terms of trade as policy makers aim to encourage an export-led recovery. In turn, the BoJ expects to see a gradually recovery unfold over the coming months, but noted that the outlook for future growth remains clouded with uncertainties given the ongoing weakness within the U.S. and European economies. As market participants continue to diversify away from the greenback, demands for the Japanese Yen may gather pace over the near-term, and the USD/JPY should work its way back towards the lower bounds of its recent range as the low-yielding currency regains its footing.
As the near-term rally in the dollar-yen tapers off ahead of 0.8400, the correction in the exchange rate could gather pace over the following week, and the pair may work its way back towards 81.00 as it searches for support. The technical developments suggest that the USD/JPY will continue to trend sideways over the near-term as the 20, 50 and 100 day moving averages converge with one another, and currency traders may get an opportunity to play the range going into March as the pair looks poised to retrace the advance from earlier this month.
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