Why The USD/JPY Rally Will Fizzle Out Soon?

USD/JPY has been on the march like never before. USD/JPY is at its highest level since 2008. Will this USD/JPY rally last and go higher more. USD/JPY moved in a range for a few months starting this year. Then when the US started showing strong economic recovery data making USD strongly bullish, Japanese economy showed poor economic performance making JPY strongly bearish, a strong USD/JPY rally started in July. USD/JPY climbed from 101 level to 109 level. But market analyst think that this USD/JPY rally will fizzle out soon. The U.S. dollar rose to its highest level against the Japanese yen since August 2008 on Wednesday, but analysts don’t expect the rally to last. “The pace has come so far and so quickly that I am inclined to think it’s really due for a little bit of a pullback or consolidation,” Sean Callow, senior currency strategist at Westpac told CNBC.

Japanese policymakers welcome a weaker yen, which boosts exports, but the rapid move is worrying. Japan is stuck with a chronic trade deficit; a major yen depreciation raises the cost of buying materials abroad, squeezing corporate earnings. The dollar-yen could rise slightly further, but will stabilize soon, according to Eisuke Sakakibara, former vice finance minister of Japan.

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