The Japanese yen was near the bottom of the group of major currencies in the last session of last week's trading. It risks further losses and underperformance in the coming weeks due to rising inflation and the ultra-loose monetary policy stance maintained by the Bank of Japan (BoJ). In the case of the USD/JPY currency pair, Friday's trading session was the second best daily performance for the currency pair for this month, as it jumped on Friday only to the resistance level of 136.52, its highest in two months, from the level of 134.05 on the same day.
Japanese exchange rates were among the biggest declines in the G10 and G20 currency groups on Friday after the official statistics bureau released inflation figures for January and the New Bank of Japan governor shared some of his views on current policy topics with lawmakers in Tokyo. Kate Jukes, senior forex analyst at Societe Generale, says, “I suspect that messing with yield curve control will end up failing like the UK's attempts to manipulate the pound sterling exchange rate mechanism, but right now, the speculators are not getting the yen's appreciation. Any encouragement in the near term also rejected rising inflation.
The analyst added that the only reason the USD/JPY exchange rate did not reach 140.0 was the drop in US government bond yields, which occurred against the backdrop of falling international stock markets and risk aversion among investors. But it is possible, if somewhat unlikely, that further increases in USD/JPY and other pairs such as GBP/JPY may only be a matter of time in light of the Bank of Japan's monetary policy stance and recent developments. Elsewhere that saw interest rate expectations rise almost across the board in Europe.
Commenting on the performance, Lee Hardman, forex analyst at MUFG, Japan's largest lender, said, "It leaves the yen vulnerable to a further correction lower while yields outside Japan are rising again on the expectation that the Fed and other major central banks will be forced to raise interest rates." to reduce inflation again,” and he adds by saying: “The USD/JPY pair is currently testing the resistance at the level of 135.00, which if broken will open the door for the pair to rise again towards the 200-day moving average, which comes at the level of 137.00 slightly.”
There is said to be deep skepticism in Japan about the idea that inflation can be sustained at levels consistent with the Bank of Japan's 2% target on a sustainable basis, due in part to several decades of flagging economic growth and weak price pressures. But many analysts and economists say that view is likely wrong, citing the combination of monetary stimulus delivered across all economies during the pandemic and Russia's subsequent invasion of Ukraine, which raised commodity prices by a fictitious ceiling last year.
Technical analysis of the USD/JPY pair:
- It appears that the USD/JPY currency pair is trading within a bullish channel formation.
- This indicates a significant short-term bullish bias in market sentiment.
- Therefore, the bulls will look to ride the current uptrend towards 137.08 or higher to the resistance 137.86.
- On the other hand, the bears will be looking to pounce on a pullback at around 135.35 or below at the support at 134.58.
On the long run, and according to the performance on the daily chart, it appears that the USD/JPY is trading within the formation of an ascending channel. This indicates a significant bullish momentum in the long-term market sentiment. Therefore, the bulls will target long term profits at around the 138.92 resistance or higher at the 142.15 resistance. On the other hand, the bears will look to pounce on profits at around 132.95 or below at 129.97 support.
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