After hitting the low of 140.35 on September 22 (during the live-fire intervention by the government and the Bank of Japan), the dollar/yen reversed and then surged to 148.96 yesterday, the highest level in 32 years and two months. During this time, in addition to breaking out of major resistance points across the board, all of the “Ichimoku Kinko Hyo Sanyaku,” “Bullish Perfect Order,” “Bullish Band Walk,” and “Dow Theory Uptrend” that suggest strong buy signals were established. From a technical point of view, it can be judged that the sentiment is “extremely strong” (assuming a scenario that tests the psychological milestone of 150.00 Yen in the near future).

From the fundamentals point of view:

(1) The US Federal Reserve’s hawkish inclinations. September US employment statistics and September US consumer price index both exceeded market expectations, leading to a 75bp rate hike at the next FOMC meeting in November and an increase within the year.

(2) Bank of Japan policy to continue monetary easing. Bank of Japan Governor Kuroda announced at the annual meeting of the Association of International Finance held in Washington, D.C. last week that the price target would be 2%. It is necessary to continue monetary easing until the BOJ achieves the target in a sustainable and stable manner.

(3) Structural pressure to sell the yen due to the widening trade deficit in Japan. U.S. President Biden said on October 15, “I’m not worried about the strong dollar.”

The government and the Bank of Japan seem to view the recent depreciation of the yen as a speculative movement, but I feel that many market participants see it as a movement purely in line with fundamentals. Therefore, even if there is a phase in which the dollar/yen depresses due to live-fire intervention, the effect of depressing the dollar/yen due to intervention will be short-lived, as it is likely that there will be a surge of bargain buying that focuses on fundamentals. It can be judged that it will end (because there are many investors who want to create USD/JPY long at a good level, there is a risk that it will rebound immediately after the drop during stealth intervention). Based on the above, we continue to forecast a rise in the dollar-yen exchange rate as the main scenario.

Today’s expected range: 148.25-149.75

Analyst: Mr. Naoto Arase, Independent Analyst