The US Dollar Japanese Yen exchange rate has been unexpectedly bullish this week, indicating that traders are happy to continue buying into USD JPY so long as Fed rate hike bets remain high. USD JPY reached an 8-month-high of 113.45 on Thursday afternoon and could continue to plow through key resistance levels.
US Dollar (USD) Trade Remains Bullish on Fed Bets and US Growth Hopes
Several significant upside factors in US Dollar trade have kept ‘Greenback’ risks biased to the upside even after its Trump bullishness faded this week.
As December’s Federal Reserve policy meeting is now under three weeks away, US Dollar strength is only likely to increase.
Demand for the US Dollar has remained sturdy in foreign exchange markets even during Thursday’s American session, despite US markets being closed to observe the Thanksgiving holiday.
Long-term factors also benefit the US Dollar to the upside, including hopes that President-elect Donald Trump will give the US economy short-term economic stimulus, which analysts predict could lead to regular US interest rate hikes in the coming year.
Japanese Yen (JPY) Drops on USD Weakness, Japanese Businesses Benefit from Weaker Yen
Recent weeks have seen the US Dollar Japanese Yen exchange rate rapidly rise from levels as low as 100.00 USD/JPY to above 110.00.
The Japanese Yen’s movements have become increasingly driven by demand for the US Dollar on the back of Federal Reserve hike bets – rather than domestic developments.
Japanese businesses, the Bank of Japan (BoJ) and even the Japanese government have welcomed this devaluation of the Yen due to its positive impact on businesses and on Japanese products that are exported around the world.
US Dollar Japanese Yen Long-Term Forecast: Only Shock could Bring USD JPY Down from its Highs
The US Dollar Japanese Yen exchange rate is likely to continue to trend higher and higher in the coming weeks and months.
Underlying factors in the USD JPY exchange rate are heavily biased to the upside, with US traders eagerly buying up the ‘Greenback’ to profit from Fed rate hike bets and short-term economic stimulus hopes.
Meanwhile, the Bank of Japan – not to mention investors shorting the Yen – will be happy to let the Japanese Yen depreciate from its highs as this will continue to benefit Japanese businesses and exporters.
However, the Japanese Yen will continue to be the ‘safe haven’ currency of choice for periods of market panic.
While USD JPY is expected to continue trending higher in the short to long-term outlook, this could shift dramatically in the event of a market shock – of which there have been plenty in the last year.
Examples of events that could potentially send traders flocking into the ‘safe haven’ Yen in the coming months include the possibility that US President-elect Trump could turn even more strongly against globalisation to the point of threatening the US economy.
There also remains the possibility that the Fed will not hike US interest rates in December, which would certainly send USD JPY plummeting.
At the time of writing, the US Dollar Japanese Yen exchange rate trended in the region of 113.20 while the Japanese Yen US Dollar exchange rate traded at around 0.0088.
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