Original article by TREVOR TAN, Business Times
The USD/JPY currency pair is at a pivotal juncture, capturing the attention of traders and investors amid signs of a potential breakout. As the pair flirts with critical technical levels, bullish momentum appears to be building, signaling a possible continuation of the broader uptrend. This extended analysis explores the current market setup, technical indicators, fundamental factors, and broader macroeconomic considerations shaping the outlook for USD/JPY.
USD/JPY Testing Key Resistance
The USD/JPY has been steadily climbing over recent months. Recent price action saw the currency pair testing levels beyond 157.00, placing it at a crucial technical intersection:
– The pair has seen upward momentum persist since early 2023, driven by diverging monetary policies between the US Federal Reserve and the Bank of Japan (BOJ)
– Technical resistance around 157.00–158.00 has historically acted as a barrier. Breaking through this zone could mark a bullish breakout
– Price action indicates buyers may be preparing for a push above multi-decade highs last reached in 1990
A sustained move higher would suggest renewed confidence in USD strength relative to the yen, which remains subdued amid low interest rates and conservative policy from the BOJ.
Potential Technical Breakout
Several technical indicators are flashing bullish signals:
– The price remains well above the 50-day and 200-day moving averages, confirming an intact uptrend
– Relative Strength Index (RSI) has climbed toward the 70 mark, signaling strong bullish momentum without yet reaching severe overbought conditions
– Fibonacci retracement levels from earlier consolidations have been surpassed, reinforcing the bullish narrative
– Momentum indicators, including MACD, show continued upward trajectory, supporting near-term bullish sentiment
Analysts caution that a sustained break above the 158.00 level would likely prompt further upward pressure with renewed buying interest. Historical resistance at 160.00 may be the next major threshold if the trend continues.
Historical Context and Resistance Levels
The USD/JPY is rapidly approaching levels not seen since the early 1990s. The last major breakout rally above 160.00 occurred during a time of much different economic conditions. Any sustained push in this region would be significant and likely attract broader market attention.
Key resistance areas to watch include:
– 158.00: Immediate hurdle that has developed in recent weeks. Strong short-term resistance
– 160.00: Psychological and historical level. A breach here may result in an aggressive bullish response
– 161.50–162.00: Multi-decade highs. These levels could become relevant if current momentum persists
Near-term support can be found at:
– 155.50: Former resistance-turned-support area during recent consolidation
– 153.00: A break here might trigger a reassessment of bullish bets
– 150.00: Strong support area aligned with longer-term moving averages
If support at 155.50 holds and buyers regain control, upside targets will regain credibility.
BOJ Policy Remains Accommodative
A major reason for persistent yen weakness lies in the BOJ’s ultra-loose monetary stance. Despite signs of rising price pressures, the Japanese central bank has moved cautiously compared to global peers.
Key factors regarding BOJ policy:
– Japan’s inflation rate has been less responsive to global upward pressure, giving the BOJ more leeway to maintain accommodative settings
– Short-term interest rates remain near zero, making the yen less attractive in a high-rate global environment
– No significant shift in yield curve control (YCC) policies has occurred, limiting any rally in yen bonds that could make the JPY more appealing
– Recent BOJ Governor Kazuo Ueda’s statements continue to underscore a cautious policy normalization path, which has dulled prospects of significant rate hikes in the near term
This policy divergence with the US Federal Reserve continues to place downward pressure on the yen and supports USD/JPY upside.
Fed Guidance
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