After March 9, when it was found that SVB could be a problem for the banking system as a whole, investors turned to the Japanese yen as a safe currency.
Here’s a quick look at how the yen has done against some of the world’s most important currencies and trading partners, like the Australian dollar.
The vertical dashed line shows the day when most people in the market started to worry. This day marked the start of an apparent rise in the yen.
After the Fed announced steps to help the market and the U.S. government said they were talking about the chance of insuring all deposits, the market went down very quickly.
USDJPY probable setups
The following reasoning leads to two very different results, but the trading situation may be in between or take longer to show up. The USD/JPY exchange rate is essential in any case.
Example 1: The banking industry had a financial meltdown
Recent instability has shown how quickly the markets can change when interest rates change. When broad fear hit the market, sellers drove the price of Fed funds futures down sharply.
This showed that people thought the Fed would have to change direction and cut interest rates instead of raising them above 5%. The dollar went down because the rates on U.S. government bonds went down.
Bears on the USD/JPY market will be interested in the chance that this will happen again if a banking crisis is not stopped. Since the USD is lowering and the yen is safe, trading in the pair could decrease.
Example 2: Banking crisis is avoided, and attention returns to inflation
In the second situation, the problem with the banks is ignored. Let’s get back to keeping costs in check.
The Fed funds rate and the dollar value may go up again if investors’ main worries about depositor security and a systemic banking problem are addressed.
If the markets like the idea of more rate hikes, the recent steps to help the market have accepted banks. Then, the Federal Reserve would have more room to raise interest rates, lowering inflation.
Even though there have been worries recently, a fundamental support level (131.35) has been held. So, people are becoming more hopeful. The next significant support area has a pivot point of 134-50.
We have a long way to let go before we hit 138.20. If the yen becomes a safer place to put your money, the marks at 131.35 and 127 will become important again.
USD/JPY outlook depends on how markets perceive future interest rates
The prediction for USD/JPY will be based on what the market thinks will happen to interest rates.
The Federal Open Market Committee (FOMC) will directly release its dot plot and overview of economic predictions later today. The Fed’s current thinking will be reflected in the interest rate forecasts. Since the Japanese control the yield curve, USD/JPY closely follows the difference between the two countries’ interest rates.