From 18 to 25 August, Turkish lira/Japanese yen is expected to consolidate at low levels within the ¥3.25–¥3.36 range, with ¥3.36 the key level for an upside break and ¥3.25 for a downside break.
For the period from 18 to 25 August, Turkish lira/Japanese yen is expected to consolidate at low levels within the ¥3.25–¥3.36 range. Direction is likely to remain difficult to establish, with ¥3.36 identified as the level for an upside break and ¥3.25 as the focus on the downside. While some expect downside support from an effective interest rate close to 40% and a recovery in foreign-exchange reserves, others see limited recovery potential because of higher crude oil prices and a stronger yen.
Three factors are expected to determine this week's market conditions: developments in the TCMB's liquidity operations, fluctuations in crude oil prices, and the national Consumer Price Index (CPI) release on 21 August. The market's direction is likely to diverge depending on which factor takes precedence. Depending on when the TCMB resumes repo auctions, the effective interest rate could move toward 37%, with the tug-of-war between normalization and persistently high interest rates expected to continue.
Expectations of additional Bank of Japan rate hikes and movements toward a stronger yen are also cited as factors. As expectations for a BOJ rate hike build, Turkish lira/Japanese yen could move differently through the yen exchange rate depending on the market's reaction to whether the 21 August CPI exceeds the previous month's result. Technically, the pair remains below the 25-day moving average at ¥3.37 and the 50-day moving average at ¥3.41, pointing to limited short-term recovery potential.
The base case for daily scenarios is low-level consolidation within the ¥3.25–¥3.36 range, with selling into rallies or chasing lower considered depending on conditions. While high interest rates and support from foreign-exchange reserves are expected to underpin the downside, policy normalization, higher crude oil prices and a stronger yen are seen as factors that will cap the upside.