Japanese Yen Forecast:
- US dollar / Japanese yen It takes off and flirts with new multi-month highs after the Bank of Japan’s performance Monetary policy resolution
- The Bank of Japan kept interest rates and the yield curve control program unchanged, indicating little appetite for a change of course anytime soon.
- This article looks at the key American dollar/JPYLevels to watch in the coming days
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USD/JPY rallied on Friday, clearing the 141.50 Yen level and hitting multi-month highs after the Bank of Japan maintained a very dovish stance and US Treasury yields resumed their advance heading into the long weekend.
To provide some context, the Bank of Japan held its short-term interest rate target at -0.10% and kept its yield curve control program unchanged at the end of its policy meeting in June, indicating little intent to change its stance in the coming months.
The central bank’s stay-at-the-track approach aimed at protecting the country’s anemic recovery and emerging inflationary trend after decades of deflation is likely to weigh on the Japanese yen in the near term, especially against higher-yielding currencies like the US dollar.
While there is some room for USD/JPY to run higher, traders should start to be more cautious, especially if the pair moves above 145.00 Yen. Last year, the Japanese authorities intervened in the market when they manipulated the exchange rate with 146.00 and 152.00.
If the yen continues to weaken rapidly, the government may start selling US dollars to curb speculative activity in the foreign exchange space and support the local currency. This is something to keep in mind going forward to avoid getting on the wrong side of a trade.
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Technical analysis of the USD/JPY pair
USD/JPY has been curling inside a symmetrical triangle recently, but broke out of a continuation pattern earlier this week, heading to the upside, as seen in the daily chart below.
While the breakout has held so far, prices need to stay above 140.40/140 to keep the bullish momentum alive. If this scenario plays out, USD/JPY could gain more strength to challenge 142.50 soon, a key resistance defined by the 50% Fibonacci retracement of the Oct 2022/Jan 2023 sell-off.
Conversely, if the sellers regain control of the market and push the pair below 139.75, we could see a slide towards 139.00. In case of further weakness, sellers may launch an attack on the psychological handle 138.00.