The USD/JPY pair has been extending its move lower, following a decline in the broader USD market. OCBC analysts Frances Cheung and Christopher Wong have noted that the overall direction for USD/JPY remains to the downside. As of the latest update, the pair was last seen at 142.86, with bullish momentum on the daily chart fading and the RSI falling. Additionally, a death cross has formed, with the 50 DMA cutting the 200 DMA to the downside. This indicates that the risks are skewed to the downside, with support levels at 142 and 141.70 (the August low) and resistance levels at 145.70 (21 DMA), 146.40 (23.6% Fibonacci retracement of July high to August low), and 147.20 (recent high).
Earlier in the week, the Bank of Japan (BoJ) Governor submitted a document to a government panel, reiterating that the BoJ would continue to raise interest rates if the economy and prices perform as expected. This could potentially have an impact on the USD/JPY pair as the BoJ’s policy shifts and the growing pace of normalization could lead to a faster narrowing of UST-JGB yield differentials. This, in turn, should continue to underpin the broader direction of travel for USD/JPY to the downside.
The economic and policy developments in the US and Japan are closely watched by traders and investors, as they can have a significant impact on the USD/JPY pair. As the Federal Reserve and the BoJ continue to adjust their policies in response to changes in the economic landscape, market participants are keeping a close eye on any shifts in interest rates and other monetary policy measures. These policy changes can lead to fluctuations in the USD/JPY pair, creating trading opportunities for those who are able to correctly anticipate and react to these developments.
One key factor that traders are monitoring is the UST-JGB yield differentials, which can be influenced by changes in interest rates and other policy measures. As these differentials narrow or widen, they can impact the attractiveness of the US dollar and the Japanese yen, affecting the USD/JPY pair in the process. Given the potential for faster narrowing of these differentials due to policy shifts, traders are preparing for potential downside risks in the pair, with support levels at 142 and 141.70 likely to be closely watched in the near term.
In conclusion, the USD/JPY pair is currently on a downward trajectory, with bearish momentum and technical indicators pointing to potential downside risks. The recent policy shifts by the Federal Reserve and the Bank of Japan, as well as the potential impact on UST-JGB yield differentials, suggest that the broader direction of travel for USD/JPY is to the downside. Traders and investors will need to closely monitor economic and policy developments in the US and Japan in order to anticipate potential movements in the pair and take advantage of trading opportunities that may arise.
