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Bank of Japan causes USD collapse, historic yen rally

News of a potential rate hike sparked volatility in USD/JPY on Thursday. Learn what the BoJ had to say and how much the yen gained from the news.
Source: Bloomberg
Picture of Frank Kaberna
Frank Kaberna
Director of Strategy, Chicago

Key points

  • USD/JPY dropped over 500 pips on December 7th before reverting
  • Bank of Japan representatives hinted at possible policy change
  • Interest rate dynamics could shift in coming months if Japan raises and US lowers

USD/JPY shaken up on rate rumors

In a remarkable turn of events for the Japanese yen (JPY), traders witnessed one of the most significant intraday rallies against the US dollar (USD) in recent memory. The Bank of Japan (BoJ), a pivotal figure in this development, hinted at a monumental shift in its monetary policy that could see an end to negative interest rates for the first time since 2015. This potential policy change spurred a frenzy in the currency markets, leading to a historic surge for the JPY.

News of potential rate hikes on December 7th caused the yen to strengthen throughout the day. The pair, which had been trading as high as 146.10, plummeted below 142.00 at its lowest point during the session. Such a drastic move is a testament to the sensitivity of forex markets to central bank policies and the anticipation of rate adjustments.

For traders, this movement was a stark reminder of the importance of staying attuned to central bank announcements and economic indicators. The possibility of the BoJ exiting negative interest rates is significant, as it signals a shift in Japan's economic outlook. After years of battling deflation, recent data suggests that Japan’s economy is experiencing inflation rates consistently above the 2% target, which is considered a sign of a healthy economy. This development is likely influencing the BoJ's considerations regarding its interest rate policy.

If the BoJ were to raise rates in the coming months, a new dynamic could arrive for yen pairs and USD/JPY in particular. After dominating the global interest rate landscape for the past year, the US may soon lose its spot as speculation mounts about potential interest rate cuts by the Federal Reserve in 2024.

Despite the day's losses, USD/JPY remains closer to its multi-decade highs than its lows. This means that while we may be witnessing a significant shift, it could also be a temporary adjustment rather than a long-term trend reversal. However, lowering interest rates in the US and rising rates in Japan could move USD/JPY off of extreme highs and closer to its long-term average.

How to trade USD/JPY

  1. Open an account to get started, or practice on a demo account
  2. Choose your forex trading platform
  3. Open, monitor, and close positions on USD/JPY

Trading forex requires an account with a forex provider like tastyfx. USD/JPY can be found in tastyfx's platform under the 'Major' pairs tab. Many traders also watch major forex pairs like GBP/USD and AUD/USD for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.

You can help develop your forex trading strategies using resources like tastyfx’s YouTube channel. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.

Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.

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