- In the last two months, the USD has appreciated 12% against the Japanese yen.
- Geopolitics, Fed speech and Fed-BoJ divergence, a tailwind for USD/JPY.
- USD/JPY Price Forecast: Bullish bias, and a move towards 130.00 is on the cards.
The USD/JPY extends to 20-year highs and aims to hit the 130.00 mark, during the American session, amid a mixed session, with global equities fluctuating, bond yields rising and commodities lower. At time of writing, USD/JPY is trading at 128.71.
Mixed market sentiment and dovish BoJ stance weaken JPY
Geopolitical issues such as the fights between Ukraine and Russia continue to weigh on the market mood. Peace talks between the two sides are on hold as Russian Foreign Minister Lavrov said another stage of the operation is beginning. Meanwhile, the Fed’s speech keeps the US dollar buoyant. On Monday, St. Louis Fed President Bullard noted that inflation is “too high for comfort” and added that Fed officials want to get to neutral rates quickly.
The market reacted to the headlines, pushing the 10-year US Treasury yield higher. The 10-year Treasury bond yield stands at 2.917%, up six basis points at the time of writing, while the US Dollar Index, a gauge of the value of the dollar, is trading higher, a 0.12% more, at 100,947.
It is worth noting that the 10-year real yield hit -0.04% for the day, its highest since pre-pandemic levels, and is about to turn into positive territory.
Aside from this, USD/JPY is supported by US Treasury yields. Also, the central bank’s divergence between the ultra-loose Bank of Japan (BoJ) policy, contrary to the Fed, weakens the JPY. Verbal intervention efforts by Finance Minister Suzuki and BoJ Governor Kuroda were mostly ignored by market players as USD/JPY rose almost 200 pips during the trading session.
In terms of data, the Japanese economic docket revealed industrial production data, which was better than expected, although it failed to give a new boost to the yen. Meanwhile, the US housing economic data print was positive, but remains in the background as the Fed focuses on inflation.
USD/JPY Price Forecast: Technical Outlook
The USD/JPY monthly chart shows the pair trending up. The break of a 20-year downtrend resistance line opened the door to the February 2002 cycle highs at 135.02, but there would be a few hurdles to overcome on the way up.
The first resistance for USD/JPY would be the May 2002 high at 129.09. A break of the latter would expose the 130.00 mark widely mentioned by former top forex diplomat Eisuke Sakakibara, known as “Mr. Yen”, who said that “Japan should intervene in the forex market or raise interest rates to defend the yen if it weakens beyond 130.”
Additional technical levels
Source: Fx Street
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