Amidst a sudden rebound in the exchange rate of the US dollar against the rest of the other major currencies, the USD/JPY currency pair had the opportunity to bounce back to the top. It jumped to the resistance level 131.40, rebounding from the support level 129.50, and settling around the level of 130.80 at the time of writing the analysis. The US dollar pairs announced the signing of the minutes of the last meeting of the US Federal Reserve and US job numbers.
Before that, the yen rose to a six-month high against the dollar as Japan's decision to raise the ceiling on bond yields last month raised bets that the nation may tighten policy further. The currency value rose 0.8% to 129.79 per dollar, surpassing the 130.41 level it recorded in August, and reaching its strongest level since June. The gains were exacerbated by a lack of liquidity as Japanese financial markets closed for the New Year holidays.
“The current level of the yen is massively undervalued, even after the recent rally,” said Rajeev de Melo, global macro portfolio manager at Gama Asset Management in Geneva. I expect an end to negative rates by April. This removes further obstacles to further strengthening of the yen.”
The Japanese yen has now risen more than 16% from a three-decade low of 151.95 per dollar hit in October. The rebound was driven by government intervention to support the currency, expectations of a slowdown in US interest rate hikes, and speculation that the Bank of Japan is about to unwind its ultra-accommodative monetary policy, which will push up bond yields and attract money assets into the country.
The yen could rise to 120 per dollar as the Bank of Japan backs off its dovish settings, predicts Eisuke Sakakibara, former deputy finance minister known as "Mr. Yen, Generali Investments and Jupiter Investment Management Ltd. also set the level of 120.00 as a next potential target. The yen also rose against its other G10 peers on Tuesday. The currency rose by 0.6% against both the Canadian dollar and the Norwegian krone, and by 0.4% against the Australian dollar.
- The current rally in the Japanese yen is a massive turnaround from September when hedge funds were selling due to the widening yield gap between the hawkish Fed and the dovish Bank of Japan.
- This divergence helped push the Japanese currency down nearly 25% by the time it reached its lowest level last year.
- Meanwhile, the Bank of Japan has been busy backing away from bets about to wind down its ultra-accommodative settings.
- The central bank last week sought to defend its new 0.5% ceiling for 10-year bond yields, increasing monthly debt purchases to 17 trillion yen ($131 billion), according to data compiled by Bloomberg.
Dollar expectations against the Japanese yen today:
There is no doubt that yesterday's losses for the USD/JPY currency pair moved the technical indicators towards oversold levels. I have recommended buying the USD/JPY from every downside level, yesterday's rebound came to confirm that. So far, the general trend is still bearish, and there will be no real and strong shift in that outlook without the currency pair moving towards the resistance levels 133.50 and 136.00, respectively. It must be taken into account that the future of the dollar’s gains depends on the reaction from the announcement of the content of the minutes of the last meeting of the US Federal Reserve today, and then the US job numbers on Friday.
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