ATFX: USDJPY is just one step away from its all-time high

Feature: ATFX Forex Column Submission

On March 13, ATFX: Since 2011, the Japanese Yen has been continuously depreciating against the US dollar. After 15 years, this depreciation trend is still ongoing and appears to be intensifying. Before 2024, market participants generally attributed the Yen’s depreciation to the Bank of Japan’s negative interest rate policy, as low interest rates led to capital outflows, which is a relatively logical explanation.

Since March 2024, the Bank of Japan has raised interest rates four times, with the benchmark rate rising from negative territory to 0.75%, marking a significant shift. The BOJ also promised to continue raising rates in the future. Under this tightening monetary policy, the Yen should have appreciated significantly against the dollar. However, the reality is quite the opposite.

Today, the USDJPY hit a high of 159.67, with the all-time high reaching 161.94 in July 2024—less than 300 basis points apart. Since the BOJ’s first rate hike in March 2024, USDJPY has fluctuated from an opening price of 151.24 to the current latest price of 159.39. The Yen has not appreciated but continued to depreciate.

The Yen’s depreciation against the dollar indicates that domestic funds in Japan are continuously flowing out to international markets. The Yen is also a funding-based safe-haven currency, so capital outflows suggest that the global market is optimistic about economic recovery. However, over the past 15 years since 2011, the global economy has experienced several cyclical shocks, yet the Yen has continued to depreciate. Therefore, simply equating Yen depreciation with global economic conditions may overlook some deeper factors.

A more reasonable explanation is that even after rate hikes, the BOJ’s benchmark interest rate remains far below the US rate, prompting capital to flow toward higher yields, which naturally leads to Yen depreciation. However, this situation may change as the BOJ continues to raise rates and the Federal Reserve continues to cut rates. Ultimately, the Yen’s relentless depreciation trend could reverse.

The greatest uncertainty lies in whether the BOJ will continue to raise rates as the market expects. Although Japan’s inflation data has shown a significant rebound, structural issues such as aging population, stagnant wages, and labor market inflexibility still constrain economic growth. These persistent problems may prevent long-term capital from confidently holding Yen.

▲ATFX Chart

In terms of market trend, on the daily chart, USDJPY remains in a short- to medium-term upward wave, operating within an ascending channel. The medium-term high is 159.44, with the latest peak at 159.67—both levels coinciding, indicating potential resistance and a risk of pullback. The medium-term low is at 152.08, which is also the lowest point in nearly five months.

The conflict between the US and Iran has pushed up international oil prices. Japan relies heavily on Middle Eastern oil supplies. If oil prices cannot return to normal levels in the medium to long term, Japan may face input-driven inflation risks again. This could reinforce the BOJ’s resolve to raise rates, which may have a certain effect in reversing the USDJPY upward trend.