What does the chart show?
The chart compares the USD/JPY exchange rate this year (dark blue line) with its performance during the first eight and a half months of 2024 (candlestick series). We use a different chart format for the 2024 data to illustrate the full extent of the volatility experienced by USD/JPY between 30 July and 5 August 2024.
During those four trading days, the exchange rate fell from 155.22 to 141.72, representing a decline of 8.7%.
Why this is important
When examining the exchange rate this year, one can identify periods that closely resemble the trading patterns observed in 2024. However, only recently has a significant divergence emerged.
Given that the Japanese yen remains close to its weakest level against the US dollar in more than three decades, the Japanese authorities' determination to support the currency, and this week's central bank meetings involving both the Federal Reserve and the Bank of Japan, investors should be prepared for a potential spike in volatility.
While it is difficult to estimate the magnitude of any potential market move, some participants are likely to look back at the events of August 2024 as a reference point.
The yen's role as the world's primary funding currency is well established and has been extensively utilised across a wide range of leveraged investment strategies. Leverage is employed across virtually all asset classes, from traditional safe-haven investments to ultra-high-beta assets. As a result, any significant and disorderly move in the funding currency can rapidly affect the global risk landscape and trigger broader market dislocations. It is worth remembering that, particularly in financial markets, history does not repeat itself, but it often rhymes. Therefore, as we navigate the current environment, it is prudent to mind the gap.
The final week of July was dominated by central bank decisions and key macroeconomic data, with investors focusing on the Federal Reserve, Bank of England and Bank of Japan alongside GDP, inflation and PMI releases. Markets were also influenced by easing Middle East tensions, which pushed oil prices lower and supported global equity sentiment. Attention remained firmly on inflation resilience, economic growth prospects and the outlook for interest rates into the second half of 2026, while corporate earnings, particularly from major technology companies, continued to shape market performance.
-
The Federal Reserve kept interest rates unchanged, with Chair Kevin Warsh maintaining a data-dependent stance and avoiding strong forward guidance.
-
Q2 GDP and Core PCE inflation data reinforced expectations that policy will remain restrictive until inflation shows further evidence of easing.
-
Investors closely monitored earnings from major technology companies, with AI investment remaining a key market driver.
-
Falling oil prices following reduced Middle East tensions improved market sentiment and supported equities while reducing inflation concerns.
-
The Bank of England left interest rates unchanged as policymakers balanced moderating inflation against continued wage pressures.
-
UK financial markets focused on the Bank's updated economic outlook and voting split for clues on future policy.
-
Corporate earnings from major UK banks and large-cap companies were generally resilient.
-
Politically, attention centred on domestic leadership developments and ongoing economic policy priorities.
-
Preliminary Eurozone GDP data suggested modest economic expansion despite weak manufacturing conditions.
-
Flash inflation data remained close to target but continued to be monitored carefully by policymakers.
-
Germany released softer economic indicators, highlighting uneven growth across the region.
-
Lower energy prices provided some relief to consumers and businesses following the easing of Middle East tensions.
-
China’s July manufacturing PMI remained a key indicator of industrial momentum and domestic demand.
-
Markets awaited signals from China's Politburo regarding further fiscal and economic support.
-
Rising wages continued to support expectations that Japan's inflation environment is becoming more sustainable.
-
Middle East tensions eased temporarily, leading to a sharp decline in oil prices and improved global risk sentiment.
