Japanese Yen, JPY, USD/JPY Talking Points:
- USD/JPY has continued to pull back with prices pushing below the 140.00 handle.
- The pair rode a strong bullish trend into a fresh breakout to create a new 2023 high last week, but matters have been different so far this week as USD/JPY is working on its third consecutive red daily bar. Has the pair topped, or is this a pull back in a larger-picture bullish trend?
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The bullish trend in USD/JPY has started to bend. But the question remains as to whether this is but a pullback in a bigger picture bullish move, reminiscent of the first nine months of last year; or whether this is the start of a reversal such as we saw show up last October.
The pair rode a strong bullish trend into a fresh 2023 high last week, making fast work of the 140.00 psychological level along the way. That enthusiasm even continued into this week’s open, at least initially, as price moved up to another fresh high at 140.92 before starting to turn-around. Monday was a holiday in the United States and USD/JPY printed a spinning top formation, which is indecisive, like a doji, but with a wider body. Yesterday produced follow-through as sellers pushed price back-below 140.00 and today is showing an extension of that pullback with price testing below the Fibonacci level at 139.59.
At this point, USD/JPY prices remains above prior resistance, and there’s a few levels of note in that regard: 138.75 was resistance into last week before the 140.00 break. Fifty pips below that level is another price of note at 138.25, as this was the prior swing-low before the breakout. And below that at 137.68 is a prior spot of support-turned-resistance that hasn’t yet shown much for support since the more recent breakout.
USD/JPY Daily Price ChartChart prepared by James Stanley, USD/JPY on Tradingview
USD/JPY: Yields, Fear and the USD
There are a few associated items to take into consideration. First and foremost, US yields have been falling this week and given the continued rate divergence between the US and Japan, that makes sense as a bearish driver in the pair. When yields are moving higher and the US Dollar is showing strength, the backdrop can be more accommodating on the bullish side of USD/JPY as the there’s been little expectation for the Bank of Japan to move away from their ultra-easy monetary policy. So a stronger US Dollar could be matched up with a Japanese Yen that had motive for continued weakness and that could allow for strong bullish trends in the pair, such as we saw last week.
US 10 Year Treasury Yields (Indicative Only – Not Available on FOREX.com platforms)
Chart prepared by James Stanley; data derived from Tradingview
JPY: The Prospect of Change at the BoJ
But, becoming more of an issue or perhaps even a concern is the prospect of change in Japan, which has started to get attention this week after some comments from the recently installed head of the Bank of Japan, Kazuo Ueda. In a speech at an annual academic conference hosted by the BoJ, Ueda said “It may be difficult to deny the possibility that we are already in a new normal that is different from the period of ‘low for long.’”
In Ueda’s first rate decision atop the BoJ in late-April, he assuaged nerves of market participants that were looking for some element of change. Instead, Ueda walked a similar line as his predecessor Haruhiko Kuroda. But, in the wake of that rate decision signs have started to show where the two may not steward their economy in the same manner.
So, at this point, there are a couple of culprits behind the pullback with the dip in US yields and the possibility of change around the BoJ. As for which carries more impact in the near future, the chart can offer some guidance. From the four-hour chart below, we can see prices pulling back below the longer-term support zone from 139.59-140.30. But, perhaps more notable is how bulls respond to a re-test of prior resistance around 138.75. This was resistance ahead of last week’s breakout and as yet, hasn’t been tested for support. And fifty pips below that, at 138.25, we have the prior higher-low before the breakout which can similarly remain of interest for support scenarios. And if that can’t hold, there’s another spot of possible support at a key spot with longer-term interest, from around 137.68.
USD/JPY Eight-Hour Price ChartChart prepared by James Stanley, USD/JPY on Tradingview
--- written by James Stanley, Senior Strategist