Even on Christmas, most investors were confident that the bad streak for the yen was over and that the U.S. dollar would fall to £130 due to divergence in the monetary policies of the Fed and the Bank of Japan. However, just three to four weeks later, everything turned upside down. USD/JPY quotes soared by 5% since the beginning of 2024 and returned to the levels at which official Tokyo used verbal interventions to dampen the offensive enthusiasm of the bulls. The yen is again the main outsider among G10 currencies. Is it doomed?

The statement by Japan Finance Minister Shunichi Suzuki that the government is closely monitoring events on Forex seemed to take markets back to November. Then, USD/JPY was trading above 150, and official Tokyo was racking its brains on how to stop the U.S. dollar. They managed to do so with the help of others – through the Fed's dovish pivot in December. CME derivatives began to lay the groundwork for expectations of a 150 basis point cut in the federal funds rate in 2024, and this was enough to sink the USD index.

As a result, asset managers were bulls on the yen for a whole four weeks, but the earthquake in Japan and a reassessment of market views on the fate of the federal funds rate forced them to return to the bears' camp.

Dynamics of USDJPY and positions of asset managers on the yen

According to Saxo Capital, USD/JPY sellers will struggle to maintain their won positions in the near future, as strong U.S. macro statistics and the growing risks of Donald Trump's return to the White House will push U.S. Treasury yields up. In such a situation, it will be difficult for both the Japanese government and the central bank to help the yen.

Indeed, despite Bank of Japan Governor Kazuo Ueda signaling a normalization of monetary policy, the successes of the USD/JPY bears turned out to be temporary. The head of the Bank of Japan stated that any overnight rate hike would be aimed at maintaining stimulating policy and not causing serious shocks in the financial markets. In his opinion, confidence in achieving the inflation target of 2% is gradually increasing. Meanwhile, the BoJ lowered its CPI forecast for the 2024 fiscal year from 2.8% to 2.4%.

Dynamics of inflation in Japan, the USA, and the Eurozone

The reaction of USD/JPY suggests that investors are unsure whether the BoJ's monetary policy normalization will be enough to break the backbone of the bulls. To return to a downward trend, efforts from both sides are needed, including the weakness of the U.S. dollar. It could arise from disappointing U.S. macro statistics. However, in its absence, it's difficult to count on the yen's revival.

Technically, on the daily chart, USD/JPY is consolidating near the fair value of 147.9. As long as the quotes are below, there is a risk of going down to the support in the form of moving averages and rebounding from them. An unsuccessful test will be a signal to buy the U.S. dollar against the Japanese yen. Longs are also relevant in case the pair returns to the high of the bar with a long lower shadow at 148.7.