How Low Can the Japanese Yen Go?#shorts #japan #money
This question is on everyone’s mind. The persistent weakness of the Japanese Yen has been a significant story throughout the year. What started as a gradual decline at the beginning of 2024 accelerated into a steep fall in the second quarter, prompting the Japanese government to intervene by purchasing the currency in April.
Currently, the Dollar/Yen has surpassed the April high of 160.23, marking a new 38-year low for the Japanese Yen. When a currency reaches such multi-decade extremes, it raises the question of how much further it can decline. Fortunately, we will talk about some historical charts that provide further insights, which we will share shortly. But before we delve into the details, don’t forget to hit the subscribe button and the notification bell for more valuable videos like this one.
Understanding the Impact of a Weak Yen
It’s important to understand that countries like Japan generally favor a weak currency. Conversely, a Yen at a 30-year high would cause panic within the Japanese government, leading to swift and aggressive intervention. Japan’s economy is heavily reliant on exports, so a weaker Yen makes Japanese products cheaper and more attractive to foreign buyers, boosting sales and the earnings of Japanese companies operating overseas.
This depreciation has also spurred a surge in tourism, with an expected 33 million visitors this year, the highest number ever, benefiting retail sales.
However, a weak Yen has its drawbacks. It drives up inflation, which remains low in Japan but increases the costs of imported goods and raw materials, squeezing the profits of Japanese companies dependent on imports. Additionally, it raises the cost of servicing debt, posing a significant challenge.
Why Won’t the Japanese Government Stop the Slide?
So why hasn’t the Japanese government intervened to halt the Yen’s decline? We’ll explore that topic later. For now, let’s discuss some long-term chart information to assess how low the Yen could go.
Long-Term Analysis of the Japanese Yen
Long-term going back to 1971 shows that we are currently at Dollar/Yen’s highest level since 1986. The long-term downtrend in Dollar/Yen has several significant Fibonacci retracement levels.
Starting from the 1971 high of 357.72 to the 2012 low of 76.77, the 38.2% Fibonacci retracement stands at 184, far from current levels. From a Fibonacci perspective, the Yen could potentially rise to 184. Another significant level is around 168.66, derived from a high of 260.55. This suggests that 168 is a crucial resistance level for Dollar/Yen.
Why Hasn’t the Japanese Government Intervened?
The Japanese government has attempted to talk down the currency, which has proven ineffective. Actual, coordinated intervention is unlikely as it would require other central banks to sell their currencies, potentially driving up their own inflation rates—an undesirable outcome in the current political environment.
Fundamentally, the Yen is weak, and the Dollar is strong for reasons that are not easily rectified. Japan’s 0.1% interest rate pales in comparison to the U.S. rate of 5%, and the Fed’s reluctance to lower rates exacerbates Japan’s challenges. Previous intervention efforts, such as in April, were short-lived.
The Japanese government has emphasized that they focus on volatility rather than targeting a specific exchange rate. Currently, Dollar/Yen volatility is lower than it was in April, possibly explaining the lack of intervention.
Trading Strategies for Intervention
Intervention can lead to rapid and significant currency moves. There are three strategies to trade intervention:
Bet on intervention happening, though this is challenging.
Fade the intervention unless it is coordinated, but exercise caution due to potential volatility.
Stick to your trading signals, take small positions, and always use a stop. Small positions are crucial as stops may not be honored during intervention.
We hope the past few minutes have provided a better understanding of the Japanese Yen’s trajectory, position management, and key considerations. Let us know in the comments whether you are staying long on Dollar/Yen, planning to sell ahead of potential intervention, or observing from the sidelines. Subscribing to our “All Things Money” channel offers more insights on trading significant events and risks. Don’t forget to subscribe for more content like this. See you next time!