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Japanese Yen Major Talking Points:

  • USD/JPY hovers around its opening level Tuesday
  • Market focus us on Japanese wage settlements, with annual negotiations under way
  • The medium-term range is holding, any break is likely to be instructive

The Japanese Yen hovered around its opening level against the United States Dollar through Wednesday’s European session, having recovered somewhat in the previous day.

USD/JPY had been boosted like most currency pairs by last week’s astonishingly strong US labor market report, and the subsequent pricing out of any early interest-rate increases from the Federal Reserve.

However, the Japanese currency enjoys some underlying support from market suspicions that the Bank of Japan could tighten its own ultra-loose monetary policy this year. To put that in perspective, interest rates in Japan haven’t risen since 2007.

The BoJ is waiting to see whether domestic demand and inflation have risen durably enough to permit any policy moves. Crucial to this will be wage growth, and there the picture remains maddeningly mixed.

Japanese workers’ real wages fell for the 21st straight month in December, according to official data released on Tuesday. However, they did so at a slower pace than that seen in November.

Annual wage negotiations are now under way in Japan and their outcome could be the single biggest pointer to what the BoJ is likely to do this year. While the thesis that rates could yet rise, the Yen will likely continue to enjoy some support, even though it will continue to offer comparatively meager yields for a long time to come.

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The currency also benefits from a degree of haven demand, as Japanese investors tend to repatriate offshore investment cash in times of geopolitical stress. Sadly, you don’t have to look too far for that right now which is probably one more reason why USD/JPY didn’t break its established trading range during last week-s Dollar surge.

USD/JPY is looking at a quiet couple of days for trading cues, with Thursday’s economy watchers’ survey out off Japan the next data release to watch. While it might move the Yen in a quiet session, it’s unlikely to present more than short-term trading opportunity.

USD/JPY Technical Analysis

A graph with lines and arrows  Description automatically generated with medium confidence

USD/JPY Daily Chart Compiled Using TradingView

of clients are net long.

of clients are net short.

Change in Longs Shorts OI
Daily 5% -9% -5%
Weekly 14% -5% 0%

The Dollar has bounced at both the top and bottom of its prior trading range in the last four days, confirming that the range retains relevance despite being derived from levels last seen in late November last year. A break is likely to be key for near-term direction at least, with the range top providing resistance at 148.69 and its base offering support at 146.60.

The latter level is also the first Fibonacci retracement of the long rise to last November’s significant highs from the lows of March. The market is clearly in no mood to spend a lot of time below that level for the moment, but steeper falls could be seen if it does. The next retracement level is at 143.43, a support level which hasn’t been seen since early January.

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–By David Cottle for DailYFX


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