This article is a rewritten and expanded version of the original piece by James Stanley, published on Forex Factory. It discusses the current state of the Japanese Yen and outlines potential price action setups in the USD/JPY, EUR/JPY, and AUD/JPY currency pairs. The analysis draws from recent developments in monetary policy, technical chart patterns, and broader economic indicators influencing the foreign exchange market.
Overview: Japanese Yen Price Action Outlook
The Japanese Yen (JPY) continues to exhibit significant volatility, driven by monetary policy decisions, intervention threats from Japanese officials, and global risk sentiment. While the Bank of Japan (BoJ) initiated policy normalization in early 2024 with an initial rate hike, the currency remains considerably weaker compared to its counterparts, particularly the US Dollar and the Euro.
The waning strength of the Yen is largely attributed to the Bank of Japan’s cautious approach to monetary tightening—a sharp contrast with more aggressive stances taken by central banks like the Federal Reserve and the European Central Bank (ECB). Meanwhile, carry trade appeal has supported further weakening of the JPY, making it a popular funding currency in times of elevated interest rate differentials.
Despite these sustained downward pressures, Japanese authorities have emphasized concerns over excess volatility and the potential for disorderly depreciation in the currency. This has made the JPY prone to episodes of rapid appreciation when intervention threats materialize, though these are often short-lived.
Key Themes Influencing JPY:
– Divergent monetary policies between the BoJ and other major central banks
– Persistently low inflation in Japan, despite higher global inflation rates
– Verbal and potential direct FX intervention by Japanese officials
– Role of JPY as a funding currency in carry trades
– Market sentiment toward risk assets and global bond yields
USD/JPY Analysis and Price Action Setup
USD/JPY has remained on a bullish trajectory for most of 2024, climbing above 160.00 in April, prompting verbal intervention from Japanese authorities that subsequently pressured the pair lower. That action highlighted a key resistance zone around the 160 handle, a level that traders now watch closely.
Despite the BoJ’s monetary tightening measures, rate differentials still favor the US Dollar, underpinning the upward trend in this pair. The Federal Reserve has maintained a hawkish tone, signaling that rate cuts may be delayed until inflation conditions materially improve. This has helped the greenback to sustain relative strength, further pressuring the Japanese Yen.
Technical Highlights for USD/JPY:
– Long-term trend remains bullish following the breakout beyond the 155.00 level in April.
– Immediate resistance lies in the 160.00 zone (historical swing high and intervention trigger point).
– Short-term support has formed around 154.50-155.00 which served as a reaction zone during recent retracements.
– Daily price structure continues to print higher highs and higher lows, confirming bullish momentum.
Potential Trading Scenarios:
Bullish Case:
– Price holds above the 155.00 handle and builds higher lows on the daily chart.
– Bounce off of technical support at 156.00-156.50 maintains upward trajectory.
– A daily close above 160.00 may drive fresh bullish interest, targeting 162.00 as a next resistance area.
Bearish Case:
– Rejection of the 160.00 level followed by a move back below 155.00 may signal deeper retracement.
– A confirmed drop below 153.50 opens the door for a move toward 151.00 support zone.
– Risk-off sentiment or further intervention comments from Japanese officials may catalyze bearish moves.
EUR/JPY Analysis and Price Action Setup
EUR/JPY has similarly advanced higher this year, driven by both Euro resilience and Yen weakness. The ECB has been less dovish than anticipated throughout 2024, especially after Q1 data showed persistent inflationary pressures across the Eurozone. This backdrop has contributed to the EUR’s strength, despite macroeconomic challenges.
The pair touched multi-year highs
Explore this further here: USD/JPY trading.