Key points:
This is a follow up article to: Japanese yen strengthens on BOJ rate hike speculations
The Japanese yen (Symbol: USDJPY) slipped towards 145 per dollar, retreating from a three-week high as the U.S. dollar staged a recovery.
The recent strength of the Japanese yen has been largely supported by a mix of domestic and international factors, but it now faces renewed pressure as the US currency regains some ground.
Picture: USDJPY slips as dollar rebounds, as observed on the VT Markets app.
Let’s go to the charts to see how this has played out.
The USD/JPY pair has been navigating through a period of recovery, closing at 144.845 with a modest gain of 0.26%. This recovery comes after the pair earlier touched a low of 143.445.
The USD/JPY pair is attempting to regain ground, trading just below key Exponential Moving Averages (EMAs), particularly the 72-period EMA, which currently acts as a resistance level. The MACD indicator is beginning to show signs of a potential bullish crossover, with the MACD line approaching the signal line and the histogram starting to shift towards positive territory. The pair may be gaining momentum, although it remains in a consolidative phase.
Traders should keep an eye on the resistance around 145.000, a psychological barrier that could determine the next direction for the pair. A break above this level could signal further upside, potentially targeting the 147.000 area. Conversely, if the pair fails to break above this resistance, it may retest support levels near 143.445, where it found recent lows.
One of the key factors influencing the movement of the Japanese yen is the diverging monetary policy outlook between Japan and the United States. Last week, Bank of Japan (BoJ) Governor Kazuo Ueda hinted at the possibility of further rate hikes, provided the bank’s economic projections prove accurate.
This has lent some support to the yen, as markets anticipate that Japan may start to gradually shift away from its ultra-loose monetary policy stance.
In contrast, Federal Reserve Chair Jerome Powell, in his recent Jackson Hole address, signalled that the time has come to adjust US monetary policy. Powell’s comments have been interpreted as dovish by the markets, leading to expectations of potential rate cuts in the near term.
This divergence in monetary policy between the BOJ and the Fed has created volatility for the yen, with traders weighing the relative strength of each currency.
Related article: Interest rate tug-of-war for central banks
The movement of the Japanese yen will likely be influenced by the domestic economic data releases, including industrial production, retail sales and inflation figures. These data points will provide insights into the future policy direction of the BoJ and could either reinforce or weaken the trajectory of the currency.
In the short term, traders may consider positioning themselves to take advantage of potential volatility around key data releases.
