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VMPL
New Delhi [India], February 19: In the tepid global economic climate, Japan's yen has recently lost its status as a safe-haven currency. Once immovable and dependable, its value has slid drastically. Yet a landslide victory by Prime Minister Sanae Takaichi has given her the ability to make major changes to rectify this. So what does this weak yen mean for forex traders, and how could these changes impact it? The Current State of the Yen Japan is the fourth-largest economy on earth. At the time of writing, the USD/JPY pairing has posted a positive uptick after a four-day losing streak. It took a dip after a poor GDP report from Japan in which its economy grew just 0.1% in the fourth quarter of last year. This was offset by a contraction of 0.7% in the quarter before. Way below expectations, it has stoked rumours of an interest rate hike by the Bank of Japan. Against this, the USD has also remained weak. It is struggling to attract interest, and the expectation is that the Federal Reserve will remain cautious. Data released the week before writing showed that consumer inflation went up less than expected. This has made people believe that borrowing costs will be lowered. The US Consumer Price Index rose by 0.2%. Added to this is the fact that employment data was better than expected, with a drop in the unemployment rate and growth in the number of jobs available. The Euro was slightly higher than the dollar. It is predicted to rise to 0.4% throughout the coming week. Against the Swiss Franc, the US Dollar is expected to fall 0.95% in the coming week. The Election of Sanae Takaichi Sanae Takaichi recently won a snap election with a landslide victory. She managed to grab 316 of the 465 seats in Japan's lower house of parliament. This is the biggest amount since her party's inception in 1955. Around 90% of LDP candidates won their seats. British Magazine The Economist has now named her the most powerful woman in the world, obviously inspiring confidence in many trading with the yen. A traditional conservative, she wants to return to the Japan of old, returning it to its pacifist outlook and rebuilding its military. Her tactics are based on spending to spur growth. It is hoped this can break the gridlock of wage stagnation, deflation and an ageing population. However, Sanae Takaichi was elected way back in October, and since then, she has done very little to bring about change, making many lukewarm to the new mandate she has. Her first few months in office involved giving handouts to families, subsidising fuel and rice with coupons, then slashing fuel taxes. All of this has appeased the voters, but the snap election was a clever and curated one. It was done to appease voters, then gain a majority to weather the turbulent economic storm that is ahead. It is also worth noting that many of her candidates won seats despite being involved in financial scandals, further showing the weakness of the opposition. The true test still lies ahead. Understanding the USD/JPY Combination For a long time, the pairing of the USD/JPY has been one of the most liquid currency pairs in forex trading. It has traditionally been viewed as one of the safest ships on the market. This makes sense, as the US Dollar is the world's currency, while the yen has always been a stable one. However, they do have a history of sharp movement driven by both countries' interest rates. Market turmoil usually appreciates the yen against the US dollar. Investment starts in higher-yielding currencies, such as the US dollar. However, as risk appetite has increased in financial markets, it has depreciated. The current climate is not one for risk assets, as has been seen in the falling value of cryptocurrencies and the run for precious metals. This signals that by looking at historical events, the Japanese yen should be gradually pushing upward, though it isn't. In January, it was widely reported that Japanese intervention to sell USD/JPY took place as it pushed past 159. The Federal Reserve had begun to ask banks in New York about their position sizes with USD/JPY just before the London exchange closures. Many believed this was a rate check taken in conjunction with the Bank of Japan as an intervention, as discussed. Finance Minister Satsuki Katayama has noted that authorities are watching foreign exchange movements. He also stated that they are prepared to act against yen weakness. Levels are trading at similar positions to where they were at the possible January intervention, and this alone led to a push in yen strength. However, US Treasury Secretary Scott Bessent has said that there will be no bilateral effort to help the yen, further weakening the currency. The Immediate Future of the Yen in Forex The weak yen has pushed up inflation in Japan. The country has long had a history of fighting against deflation, using a varied toolbox of financial tactics to do so. Many central banks have followed these tactics over the years. However, the inflation boosts since 2022 have not had the desired impact, mainly because of a shortage of workers due to the country's ageing population. This has hit exports. Thus, a weak yen means the currency is worth less against others. This causes currency pairs to rise to astronomical highs, as has been seen recently, prompting possible interventions. An uptake in carry trades is usually the result of this, in which the yen is borrowed to buy higher-yielding currencies. The USD/JPY is now a daunting currency pairing, due to drops in the value of both currencies. At the time of writing, it stands at 153.58, down from four-week highs of 158.50. This 158.61 level is a key resistance point that should be watched during the coming month. Despite some positives, the outlook still looks bullish. (ADVERTORIAL DISCLAIMER: The above press release has been provided by VMPL. ANI will not be responsible in any way for the content of the same.)
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