USD/JPY briefly plunged to the 152 range in early New York trading. Yen short positions are being unwound rapidly, heightening caution ahead of next week’s U.S. FOMC meeting and Bank of Japan meeting.
The yen strengthened rapidly in today’s foreign exchange market, with USD/JPY briefly plunging to the 152 range. Although the pair has been finding support recently, yen short positions are being unwound rapidly. The yen has risen approximately 4% over the past week, while USD/JPY has fallen well below its 200-day moving average.
The yen’s appreciation is being driven by the unwinding of carry trades amid growing expectations of additional Bank of Japan rate hikes. The momentum behind the yen’s rise is approaching the level seen during the yen’s sharp surge in August 2024, recalling the large-scale unwinding of carry trades triggered by indications of a rate hike.
Investors may be rushing to reduce their positions, and there are concerns that continued yen appreciation could cause selling to spread to high-beta stocks, emerging-market currencies and riskier credit. If correlations rise, the risk-mitigation benefits of diversification could also diminish.
Volatility in USD/JPY has reached elevated levels in the options market, with market participants preparing for increased price fluctuations over both the short and long term. Meanwhile, the RSI has fallen below 30, and caution is warranted over a rebound driven by oversold conditions. PPI and CPI data are scheduled for release next week, and the market is focused on the impact of the FOMC.