USD/JPY is waiting for the big correction. Get, set & ready USD/JPY has been rising since January 2021. It becomes unstoppable. As all beginnings have an end, no matter how high USD/JPY rises, it will wear out very soon.
But firstly, we have to understand why it is rising. Why is the Japanese Yen weak against all currencies despite being a safe-haven asset.
The Bank of Japan itself acts as the mastermind behind the weakening of the Japanese yen. I have been trading since 2007. I saw from the beginning that the Bank of Japan would weaken the Japanese Yen by intervening whenever they got a chance.
Since Japan is an export-dependent country, the weakening Japanese yen is good for the Japanese economy, At list Bank of Japan thinks.
There are several other reasons why the Japanese yen has been weak for more than a year now. At the same time, the Bank of Japan wants a weaker yen. On the other hand, in this time of inflationary pressure, where almost all banks, starting with the Fed, are raising rates, the Bank of Japan is announcing that it will not raise rates. By doing so, those who will invest in Japanese yen are also falling behind due to not getting an overnight swap.
After World War II, Japan retreated a lot militarily, but in recent times, due to Chinese domination, Japan seems to be regaining military power. This is the main reason why investors are ignoring the Japanese yen as a safe-haven asset.
Switzerland is much more neutral. Due to this the Swiss franc is still getting the benefit of safe haven. Japan has also been neutral for a long time. But in recent times, Japan has been trying to break out of its neutrality and create a ring of its own.
For all these reasons, the Japanese Yen is not able to take advantage of this crisis even as a safe haven.
However, if oil prices continue to rise, the Bank of Japan will not be able to keep the yen weak even if it wants to. If the yen is too weak to raise energy prices, Japanese companies will have to pay a lot more to buy oil. In doing so, the Japanese economy will suffer from the disadvantages of the weak yen, rather than the advantages it had.
USD/JPY is only 400 pips away from its all-time high zone. I think it has now come to a level very close to dropping in the long run.
Technical Analysis
If USD/JPY’s weekly candle closes below the 122.50 price zone, there is a chance that USD/JPY might drop from the current level. On the other side, closing above 122.50 price zone may lead the USD/JPY 124 to 125.00. From my view, correction is a must on that level and hopefully 122.50.
