- USD/JPY’s pullback from Monday’s highs of 125.00 continued on Tuesday after statements by Japanese politicians sparked profit-taking.
- But the pair bounced off 122.00 and many strategists are not expecting a lasting pullback given the Fed’s recent hawkish line change.
The strong setback of USD/JPY from multi-year highs, testing the 122.00 level during US trade. Since then, the pair rallied above 122.00, currently at 122.70 but remains bearish, losing 0.8% on the day and roughly 1.9 % compared to Monday’s highs around 125.00.
This week, the BoJ stepped up its yield curve control efforts to defend the upper bound of its 10-year target range (at 0.25%). The surge in purchases marks an increase in monetary stimulus at a time when other major global central banks such as the Fed, BoE and ECB are removing such stimulus and helped fuel the recent USD/JPY rout. But when the pair hit its highest levels since 2015 on Monday at 125.00, and when its 14-day RSI reached its highest levels since 2014 above 87.00, traders warned that a take was likely. earnings and a technical correction.
That profit-taking in the USD/JPY pair was prompted by comments from Japanese Finance Minister Shunichi Suzuki, who said the government would closely watch the currency’s moves to avoid a “bad” weak yen hurting the economy. . “While comments from Japanese officials are unlikely to reverse the yen’s weakening trend on their own, they should at least help curb the recent rapid pace of yen selling,” analysts at MUFG said.
Strategists at UniCredit said “the divergence between US and Japanese monetary policy will continue to weigh on the yen, which we expect to stabilize around 125 against the dollar and probably even beyond that level.” “Our view on the dollar remains positive due to the aggressive stance of the Federal Reserve,” they added. Perhaps it shouldn’t have been too much of a surprise to see USD/JPY find support at 122.00. As a flood of US data looms (including the latest NFP issue) and as Fed policymakers back the Fed’s aggressive new rate guidance, a retest of this week at 125.00 seems very likely.
Technical levels
Source: Fx Street
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