JAPANESE YEN OUTLOOK
- The Japanese yen has depreciated sharply this year, but there’s potential for its outlook to improve in the weeks to come
- The prospect of the Bank of Japan discontinuing negative rates early in the second quarter is likely to be supportive of the yen
- This article offers a detailed analysis of the technical prospects for USD/JPY, EUR/JPY, and GBP/JPY
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The Japanese yen has weakened significantly against its top peers in 2024 on Bank of Japan’s dovish position. While major central banks around the world have lifted rates aggressively over the past two years to tackle inflation, the BoJ has stood pat, keeping its policy settings highly accommodative.
The era of significantly relaxed monetary policy in Japan, however, could be drawing to a close, potentially as soon as the early months of the second quarter. This could herald the start of a sustained upswing for the yen, meaning the worst is likely over.
If annual compensation negotiations between Japanese big firms and unions, slated to wrap up around mid-March, result in bumper pay increases north of 4.0%, policymakers may gain the confidence they need in the sustainability of wage growth to finally pull the trigger and move away from negative rates.
We will learn more about the Bank of Japan’s monetary policy outlook in the coming weeks, but the stars seem to be aligning for a rate hike in late March or, more likely, April. As markets attempt to front-run this scenario, the yen may gradually begin to mount a comeback.
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USD/JPY FORECAST – TECHNICAL ANALYSIS
USD/JPY climbed on Thursday, approaching resistance at 150.85. If gains pick up pace in the coming days and break above the 151.00 handle, buyers may get emboldened to initiate a bullish assault on last year’s high near 152.00.
On the flip side, if sellers return and drive the exchange rate lower, technical support appears around 149.70, followed by 148.90. Further losses from this point onward may usher in a pullback towards 147.50 in the near term.
USD/JPY TECHNICAL CHART
USD/JPY Chart Created Using TradingView
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EUR/JPY FORECAST – TECHNICAL ANALYSIS
EUR/JPY extended its advance on Thursday, steadily approaching last year’s peak around the 164.00 handle. Bears need to strongly defend this ceiling; failure to do so might lead to an upward push toward trendline resistance at 165.00.
In case of a bearish reversal, support is anticipated at 161.50 and 160.70 thereafter. On further weakness, all eyes will be on the 100-day simple moving average located near 159.60. Below this level, the 50-day simple moving average could act as the next shield against additional losses.
EUR/JPY TECHNICAL CHART
EUR/JPY Chart Created Using TradingView
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| Change in | Longs | Shorts | OI |
| Daily | -19% | -8% | -11% |
| Weekly | -16% | -2% | -5% |
GBP/JPY FORECAST – TECHNICAL ANALYSIS
GBP/JPY rallied on Thursday, hitting a fresh multi-year high above 190.50. With bullish momentum intact, additional upside potential is likely in the short term, with the next resistance threshold at 192.50, followed by 196.00, marking the highs of 2015.
Conversely, should the upward momentum wane, resulting in a market retracement, support is seen around the psychological 190.00 level, and subsequently at 188.50. Further down, bears are likely to set their sights on the 50-day simple moving average in the vicinity of 185.50.