Title: USD/JPY Experiences Temporary Pullback but Maintains Bullish Momentum
Original source: “FxWirePro: USD/JPY retreats slightly but trend is still bullish” by FxWirePro, published on EconoTimes.
The USD/JPY currency pair has shown a minor retreat from recent highs, but the prevailing outlook remains bullish. Markets continue to gauge the strength of the US dollar against the Japanese yen amid shifting global economic dynamics, evolving monetary policy expectations, and differing central bank outlooks. Despite the temporary downward pressure, the broader trend continues to favor the US dollar, particularly in the short- to medium-term.
1. Current Market Conditions
The USD/JPY dipped slightly, trading near 149.00 after reaching recent highs above 149.70. This minor correction is not entirely unexpected, considering strong bullish performance over the past sessions. Market participants are assessing incoming economic data and central bank commentary for guidance on future price direction.
Key influencing factors include:
– Continued divergence between US Federal Reserve monetary policy and the Bank of Japan’s ultra-loose stance.
– Strong US macroeconomic indicators supporting the dollar.
– Japanese officials’ cautious tone regarding currency volatility and possible intervention.
2. Technical Analysis Overview
From a technical standpoint, the USD/JPY remains within a clearly defined bullish channel. While some short-term profit-taking has emerged, the pair maintains an upward trajectory.
Technical indicators suggest:
– Immediate support levels around 148.60 and 148.00.
– Key resistance levels near 149.80 and 150.00.
– The moving averages, including the 50-day and 100-day simple moving averages (SMA), are sloping upward, reinforcing the bullish outlook.
– The daily Relative Strength Index (RSI) remains above 50 but below overbought territory, suggesting room for further upside.
– Price action has consistently produced higher highs and higher lows on the 4-hour and daily charts.
3. US Dollar Fundamentals Driving the Pair
The strength behind the US dollar’s advance against the yen is rooted in macroeconomic fundamentals and monetary policy divergence. The US economy continues to show signs of resilience, validated by strong labor market figures, robust consumer confidence, and elevated inflation figures that support the likelihood of the Federal Reserve maintaining higher interest rates for longer.
Supporting US economic data include:
– Strong job creation and low unemployment rates.
– Persistent core and headline inflation slightly above the Fed’s 2 percent target.
– A more hawkish tone from Fed officials, signaling the possibility of at least one more rate hike in 2024 or fewer rate cuts than previously expected.
The Federal Reserve’s preference to keep policy restrictive while inflation remains above target has led to higher US Treasury yields, which, in turn, bolster the US dollar. These factors continue to make the greenback attractive to investors.
4. Japanese Yen Faces Structural Weaknesses
On the opposite side, the Japanese yen remains under constant pressure due to the Bank of Japan’s reluctance to embark on a full-scale normalization of monetary policy. Japan has persisted with negative interest rates and yield curve control, even as inflation has shown some upward momentum.
Challenges confronting the yen include:
– Ultra-loose monetary policy: The BoJ’s negative interest rate policy has fundamentally weakened the yen.
– Lower yields: Japanese government bonds offer minimal returns, reducing foreign investor interest.
– Relative economic stagnation: Japan’s economic recovery has lagged that of the US, limiting confidence in the yen.
– Intervention risks: While Japanese authorities, including Finance Minister Shunichi Suzuki, have warned of speculative movements in the FX market and expressed readiness to act if needed, actual intervention remains a last resort and has so far exerted only short-term influence.
5. Intervention Concerns and Verbal Guidance from Japan
Japanese policymakers have become increasingly vocal in response to the yen’s depreciation. There has been growing concern over excessive FX volatility and its impact on the domestic economy. Although Japan stepped into the FX market in 2022
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