USD/JPY extended its recent plunge on Thursday, falling well below the 110.00 psychological level to hit its next major downside support target at 108.00. In the process, the currency pair has established a new 17-month low.
USD/JPY’s sharp fall within the past week-and-a-half has been primarily because of weakness in the US dollar due to ongoing caution on the part of the Federal Reserve in hiking interest rates further, along with skepticism with regard to the Bank of Japan’s effectiveness in intervening to weaken the yen.
Wednesday’s release of meeting minutes from last month’s FOMC meeting indicated debate among Fed members regarding the conditions for another rate hike, but clearly highlighted the group’s persistent concern over weak economic growth and inflation, which would pose a major obstacle to raising interest rates further. The Fed’s continuing dovish stance on monetary policy have placed increasing pressure on the US dollar as of late.
Although the surging yen has raised speculation that the Bank of Japan may soon intervene to weaken its currency, skepticism remains over the efficacy of the central bank’s attempts to do so, especially in light of its recent easing into negative interest rate territory, which had no lasting impact on restraining yen appreciation.
From a technical perspective, USD/JPY has broken down below several important support factors in the past week-and-a-half. After retreating from both its 50-day moving average and the upper border of a large descending triangle pattern, the currency pair broke down below major support at 111.00 earlier this week. After doing so, USD/JPY quickly followed-through by dropping down to key psychological support at 110.00. Then, as previously noted, price action plunged further on Thursday to hit the major support target at 108.00. In the absence of a successful attempt by the Bank of Japan to intervene in the strong yen, a weakening dollar could push USD/JPY lower in the short-term. In the event of a sustained breakdown below the 108.00 level, the next major downside target is at the 105.00 support level.