Japanese yen analysis: USD/JPY breaks out despite bearish seasonality
Matt Weller, CFA, CMT March 29, 2023 4:06 PM
USD/JPY's price action this week is providing a strong signal given the yen's usually bullish seasonal backdrop.
- USD/JPY is rallying strongly today, gaining nearly 150 pips to trade at its highest level in a week.
- The yen the weakest major currency on the day and the week, despite the normally-bullish fiscal year-end seasonality.
- The next levels of resistance to watch are at 132.850 and 135.00 if the near-term rally extends.
From a bigger picture perspective, it’s not hard to see why the yen might be struggling in the current environment. After all, outside of the BOJ, every other major central bank has raised interest rates aggressively over the last year, and even the new head of the BOJ, Kazuo Ueda, shows no signs of changing that any time soon. Likewise, the Japanese economy remains moribund, struggling under the weight of aging demographics, debt overhang, and a lack of innovation.
Be that as it may, the yen has shown a strong historical seasonal tendency to rally in the final week of March. The fiscal year ends in Japan ends on March 31, and multinational Japanese countries tend to repatriate their profits around that time of year so they can pay taxes, creating marginal buying pressure on the island nation’s currency.
Likewise, the act of paying taxes removes yen from circulation, at least temporarily, creating both lower supply and higher demand at this time of the year.
Against that backdrop, the fact that the yen is the day’s, and week’s, weakest major currency is particularly significant. It means that the factors leading to yen weakness may have had an even stronger impact on any other week.
Of course, the fiscal year is not yet over, so its worth watching USD/JPY’s strength carries over through the rest of the week, but as it stands, this week’s price action in the yen is providing a strong signal given the seasonal backdrop.
Japanese yen technical analysis: USD/JPY daily chart
Source: StoneX, TradingView.
As the chart above shows, USD/JPY has broken out of its short-term descending triangle pattern, potentially opening the door for an extended rally from here. Zooming out, there’s also a chance that Friday’s low marks a “higher high” for the pair, signaling a potential end to the medium-term downtrend off last October’s high.
The next level to watch will be the 21-day EMA near 132.80, with a break above that level paving the way for a potential continuation toward the mid-March highs at 135.00 next. Meanwhile, a reversal back down into the channel would erase the near-term bullish bias and could even portend a retest of the 10-month lows near 128.00 in time.
-- Written by Matt Weller, Global Head of Research
Follow Matt on Twitter @MWellerFX
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.