Bearish pressure remained in control of the performance of the USD/JPY currency pair during last week's trading.
- The currency pair closed the week in decline around the support level 136.55.
- The currency pair's view may change this week if the US Federal Reserve's decisions come with a tight tone.
- This was in the event that the US inflation figures came out stronger than expected.
- The Japanese yen was the market's weakest bearer during the US dollar's rally this year, but it has performed better in recent weeks. The yen is likely to benefit from a significant rally if speculation emerges about a potential BoJ cash shift.
Next year's policy will prove to be well founded.
The Japanese currency was still down more than 15% against the US dollar for the year on Friday while also carrying double losses against the Swiss franc and the New Zealand dollar when measured against its G10 developed market peers. However, even currencies such as the British pound and the euro have gained about 9% against the Japanese currency while in emerging markets, higher-yielding holders such as the Mexican peso and the Brazilian real have made larger gains on the yen than on the US dollar.
If emerging speculation about the outlook for the Bank of Japan's monetary policy and the future of its long-term yield curve control (YCC) policy proves well-founded, the above view could shift for a short period of time next year, research from RBC Capital Markets suggests. In this regard, Adam Cole, senior forex analyst at RBC, says: “There is little doubt that the quick reaction to the announcement of the abandonment of YCC will be positive for the Japanese yen. Despite the decline from the highs, the speculative assumption in USD/JPY remains significantly long.” He added, “Covering these yen shorts alone could send USD/JPY down significantly, even more so if JGB's initial reaction is an overshoot. But once the dust settles, we see a significant risk that the 2022 trend of JPY weakness will reassert itself.”
RBC data and other figures from the Chicago Futures Trading Commission indicate that speculative bets on the yen have risen to their highest level in more than a decade this year, which is why the analyst expects a big rally from the Japanese currency if the BoJ goes ahead with the policy changing in 2023.
Overall, the Bank of Japan's policy of keeping the 10-year Japanese government bond yield low between 0% and 0.25% encouraged investors and traders to borrow the yen cheaply before selling it in order to fund speculative bets on currencies and other assets over a number of years. Any decision by the Bank of Japan to abandon its YCC policy or allow a higher level of bond yields is likely to convince, or perhaps force, some yen borrowers or otherwise sellers to start buying back the currency next year, although the RBC team suspects that any hike will last.
Forecasts of the US dollar against the Japanese yen today:
My technical view of the performance of the US dollar currency pair against the Japanese yen USD/JPY will not change except when the markets and prices move in interaction with the US inflation numbers and the monetary policy decisions of the US Federal Reserve Bank.
So far, the bulls of the USD/JPY pair are still looking for motivating factors to exit the descending channel. As I mentioned before, there will be no real and strong reversal of the bullish trend without testing the psychological resistance 140.00 again. The bulls are looking for motivating factors to move. In the event that it fails to obtain this, the USD/JPY pair may be exposed to a bearish momentum to move downwards again, and therefore the support levels 135.30 and 134.00 may be the next targets.
In general, I still prefer to buy the dollar against the yen from every downward level.
Ready to trade our Forex prediction today? We’ve shortlisted the best Forex trading brokers in the industry for you.
