The USD/JPY exchange rate crashed to a low of 144.53 on Monday as investors moved to the safety of the Japanese yen. It dropped to 144.53, its lowest level since October 2, and 8% below the highest point in January.
Japanese yen as a safe haven
The USD/JPY pair has crashed because the market believes the Japanese yen is a safe haven as global risks rise.
A good example of these risks is the ongoing plunge of the CNN Money fear and greed index, which has plummeted hard in the past few weeks. The index dropped to a multi-year low of 4, as all its sub-indices moved to the extreme fear zone.
Further, the VIX index, which is the most popular volatility index in the US, has surged to $38 from the year-to-date low of below $20. It continued its surge on Monday, as it rose by over 17%
Therefore, the Japanese yen has jumped because it is often seen as a safe haven currency because of the vast sums of money in US Treasury bonds and other assets.
Read more: USD/JPY prediction as the US and Japan trade war escalates
BoJ interest rate hikes
The USD/JPY pair has crashed as the divergence between the Bank of Japan continues.
Analysts believe that the Federal Reserve will now intervene in the market. Trump has called for the Fed to slash interest rates, a move he believes will help to boost economic growth and help it refinance over $9 trillion in bonds
Historically, the Fed has reacted to major black swan events by cutting rates and implementing quantitative easing policies. As the US stock market explodes, there is a likelihood that officials will be under pressure to respond.
Meanwhile, analysts believe that the BoJ will continue to fight inflation by hiking interest rates later this year. A poll by Reuters estimates that the bank will leave rates unchanged in its May 1 meeting as it observes the state of the economy. They also expect that the bank may deliver at least one rate cut this year.
Still, there is a likelihood that the bank will decide to delay its rate hikes because of the impact to Donald Trump’s tariffs on Japan. The US will levy a 25% tariff on auto imports and a reciprocal tariff of 24% of all Japanese goods.
This is a notable thing since Japan does a lot of business in the US. It exported goods worth over $141.52 billion, most of which were vehicles. A 25% tariff on these vehicles will make them unaffordable to US customers.
USD/JPY technical analysis
USD/JPY chart by TradingView
The daily chart shows that the USD/JPY pair has crashed in the past few weeks and has imploded to a low of 144.53, its lowest point since October 2. It moved below the crucial support level at 146.60, its lowest level on March 10 and December 3 last year.
The pair has already formed a death cross as the 50-day and 200-day moving averages have crossed each other. Therefore, the pair will likely continue falling as sellers target the next key support at 140, the lowest point in September last year. This target is about 4.3% below the current level.
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