During early trading in Europe on Wednesday, the euro/yen exchange rate was dipping to about 185.90. The Japanese yen (JPY) has gained strength against the euro (EUR) as traders are cautious about potential intervention by Japanese authorities.
Finance Minister Satsuki Katayama mentioned on Wednesday that the government is prepared to act on foreign exchange matters if needed, expressing agreement with the Bank of Japan Governor on various topics.
Technical analysis:
According to the daily chart, the EUR/JPY shows a generally positive trend, with prices remaining above the Bollinger middle band and well above the 100-day simple moving average (SMA), which indicates that the upward momentum is still solid. The latest Relative Strength Index (RSI) sits at 58.43—not overbought, but indicating continued bullish momentum that isn’t quite exhausted yet.
On the upside, immediate resistance is aligned with the Bollinger Upper Band near 186.10, approaching the high reached on April 29 at 187.42. Additionally, the median line close to 185.08 is supporting the nearby demand area. Key levels to watch are the 100-day SMA at around 184.47 and the lower Bollinger Band around 184.07.
Frequently asked questions about the Japanese Yen
The Japanese Yen (JPY) ranks among the most traded currencies globally. Its value fluctuates broadly with trends in Japan’s economy but is more specifically influenced by factors like the policies of the Bank of Japan, the differences in bond yields between Japan and the U.S., and trader sentiment.
One of the Bank of Japan’s key roles is to manage exchange rates, making its actions pivotal for the yen. The Bank sometimes intervenes in currency markets to devalue the yen, although such interventions are infrequent due to political concerns from major trading partners. The lengthy ultra-easy policy from 2013 to 2024 created a significant policy gap between the Bank of Japan and other major central banks, leading to a weaker yen. Recently, the gradual scaling back of this ultra-easy policy has lent some support to the currency.
Over the last decade, the Bank of Japan’s strict adherence to ultra-easy monetary policy has widened its differences from other central banks, notably the U.S. Federal Reserve. This divergence has confirmed the increasing gap between U.S. 10-year bonds and Japan’s, favoring the U.S. dollar against the yen. However, with the Bank of Japan planning to gradually shift its policy in 2024, alongside interest rate cuts from other central banks, this gap is beginning to close.
The Japanese Yen is often seen as a safe investment. This means that during turbulent market conditions, investors tend to flock to the yen, viewing it as reliable and stable. In times of stress, the yen usually appreciates against other currencies, which are seen as riskier.
