As soon as concerns about stability of the financial market, caused by Bretix, have decreased, the pair USD/JPY went up, while the Yen slightly fell against the other currencies. When the UK’s decision to leave the EU was announced the Yen significantly increased in the financial market, as investors doubted about the stability of the financial and trading market of Eurozone. At the same time, the USD fell by 99.00 against the Yen, which was the lows since November 2013. Later the pair went up and is now traded at the level of 103.00.
High demand for the Yen as a safe-haven currency is caused by economic uncertainty in the world.
Now, when the concerns about Brexit is decreasing, fundamental factors, such as monetary policies of the Banks of Japan and USA again started to have the major influence of the movement of the currency pair USD/JPY.
Japan faces inflation problem. Judging by all the indicators, inflation in Japan is below 2%, while inflation expectations of the companies and households continue to decline.
It is possible that the Bank of Japan will introduce further measure to soften monetary policy at the meeting on 28-29 July. Many economists believe that if it does not happen, the pair USD/JPY may fall below 100 and index Nikkei can drop below 15000, which will be a serious problem for the financial market and for the Japanese exporters, as the Yen will go up.
According to some forecasts, the Bank of Japan will increase purchase of assets up to до 1 trillion yens (9.7 billion USD) per year and increase purchase of government bonds and real estate investment trusts by 67%.
It is also possible that the Bank of Japan will lower interest rate to -0.3% from the current level of -0.1%.
The adherence of the Fed to the softer monetary policy does not mean that the Fed will completely refuse from tightening monetary policy in future. In the long-term interest rates in the USA will be either raised, or left unchanged. On the contrary, the Bank of Japan is likely to continue softening of its monetary policy.
In the medium-term the pair is likely to grow.