GBPJPY: The Japanese yen hits its lowest level in 3 decades amid
Updated
The Japanese yen has hit its weakest level against the US dollar since 1990, trading at 153.24 per dollar on April 10. This signals significant downward pressure that has prompted Japanese financial authorities to officially warn of possible intervention. Even though Japan's central bank switched interest rates from negative in March, the currency continues to struggle, with the value of the yen's real effective exchange rate index falling to its lowest level since then. since the records of the Bank for International Settlements began in 1994.
The yen's depreciation has been going on for more than three years, losing about a third of its value since the start of 2021. Factors contributing to the yen's decline include Japan's low interest rates, which remain below 0.1%, in stark contrast to US short-term interest rates at 5.25-5.5%. The significant yield gap between US and Japanese government bonds, with a difference of nearly 370 basis points at the 10-year maturity, has continued to fuel the yen's slide.
Investors have been engaging in "carry trading," borrowing yen at low cost and investing in higher-yielding currencies. This fact is especially appealing during periods of low market volatility, like the present. The benchmark interest rate differential between Japan and other economies is a key driver in these market dynamics.
Despite Japan's central bank's historic policy shift in March, the move was expected. With no prospect of sharp interest rate hikes in the future, investors have felt comfortable maintaining or increasing short positions in the yen. Yen short sales hit a decade high in April.
The yen's depreciation has been going on for more than three years, losing about a third of its value since the start of 2021. Factors contributing to the yen's decline include Japan's low interest rates, which remain below 0.1%, in stark contrast to US short-term interest rates at 5.25-5.5%. The significant yield gap between US and Japanese government bonds, with a difference of nearly 370 basis points at the 10-year maturity, has continued to fuel the yen's slide.
Investors have been engaging in "carry trading," borrowing yen at low cost and investing in higher-yielding currencies. This fact is especially appealing during periods of low market volatility, like the present. The benchmark interest rate differential between Japan and other economies is a key driver in these market dynamics.
Despite Japan's central bank's historic policy shift in March, the move was expected. With no prospect of sharp interest rate hikes in the future, investors have felt comfortable maintaining or increasing short positions in the yen. Yen short sales hit a decade high in April.
Note
GBPJPY BUY 191.90-191.95TP1: 192.20
TP2: 192.50
SL: 191.50
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