Key points:
The USDJPY currency pair pulled back from its highs of 144.50, dipping to 143.17 before stabilising in the 143.47-77 range. Traders are keeping a close eye on developments as Tokyo gears up for the fiscal half-year end, which typically introduces some volatility into the market.
Picture: USDJPY stalls near 144.50 resistance, as observed on the VT Markets app.
Looking at the charts, we see that the USDJPY pair has climbed back above the 144.38 level, with market participants focusing on key drivers such as U.S. yields and the interest rate differentials between Japan and the U.S. The currency pair has seen a steady recovery after finding support at 141.73, and the current price action indicates an attempt to break through the resistance near 144.38.
On the MACD, we observe a positive crossover, with the histogram expanding, signalling bullish momentum. The moving averages (24, 24, 72 EMA) are also pointing upwards, confirming that upward pressure could persist in the short term.
However, traders will remain cautious as further adjustments in the Japan-U.S. interest rate differential and U.S. Treasury yields could influence the direction of the pair. If the pair can sustain the gains above the 144.38 resistance level, the next target could be the 144.68 range, while a break below the 144.00 level could signal consolidation.
The recent move of the USDJPY currency pair away from the 144.50 mark highlights market reluctance to push higher with soft U.S. Treasury yields.
The 2-year Treasury yield currently sits at 3.576%, and the 10-year yield is 3.744%, reflecting softer expectations of aggressive monetary tightening from the Federal Reserve. This is important for USDJPY traders, as lower yields generally weigh on the dollar, limiting its ability to break above key levels like 144.50.
On the flip side, Japanese government bond (JGB) yields remain low, with 2-year JGBs yielding 0.361% and 10-year JGBs at 0.823%. The narrowing interest rate differential between the US and Japan continues to act as a cap for the upward momentum of USDJPY. The pair is now caught in a range as the policy stance of the Bank of Japan remains accommodative, while the U.S. outlook suggests that aggressive rate hikes may be off the table.
Related topic: Interest rate tug-of-war for central banks
In the short term, U.S. economic data and comments from the Fed will be critical for the direction of USDJPY. Should US yields remain subdued, the pair is likely to stay in its current range, with a downside bias if the 143.00 support gives way.
However, any upside would likely be capped around 144.50 as long as the interest rate differential between the two economies continues to narrow. Traders should also monitor the market activity of Tokyo as the fiscal half-end approaches, which could create some additional volatility in the coming sessions.
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