. USD/JPY at 141.00: BoJ-Fed Policy Divergence

USD/JPY at 141.00: BoJ-Fed Policy Divergence

28 Dec 2023

USD/JPY faces pressure around 141.00 due to policy divergence between the Federal Reserve and the Bank of Japan.

FUNDAMENTAL OVERVIEW:

In Thursday’s European session, USD/JPY is maintaining substantial losses near 141.00. The Japanese Yen continues to strengthen, propelled by hawkish remarks from BoJ Governor Ueda, emphasizing the policy divergence between the Federal Reserve and the Bank of Japan.

On Friday, the Japanese Yen (JPY) faced a setback after the release of softer domestic consumer inflation data, contributing to uncertainty about the Bank of Japan’s (BoJ) timing for tightening its ultra-loose policy. Additionally, BoJ’s October meeting minutes revealed a consensus to patiently maintain the current accommodative policy, further weakening the JPY. Coupled with a slight uptick in the US Dollar (USD), this prompted a modest recovery in the USD/JPY pair from its weekly low around the 141.85 level earlier in the day.

Japan’s core CPI has maintained about a 2% target for the 20th consecutive month. Additionally, optimism regarding wage growth surpassing 2023 levels in the coming year suggests that the Bank of Japan (BoJ) might shift away from its ultra-dovish stance, possibly as early as April, if not January. In contrast, the market is currently anticipating a more assertive policy easing by the Federal Reserve (Fed) in 2024. This expectation gained momentum following a downward revision of the US Q3 GDP print, hindering traders from initiating fresh USD bullish positions and keeping the USD/JPY pair below the 200-day Simple Moving Average (SMA).

Investors are turning their attention to the upcoming release of the US Core Personal Consumption Expenditure (PCE) Price Index, scheduled for the early North American session. This crucial inflation data will play a pivotal role in shaping the Federal Reserve’s future policy decisions, impacting USD demand and influencing the short-term direction of the USD/JPY pair. However, the prevailing fundamental conditions appear to Favor JPY bulls, indicating that the pair’s path of least resistance continues to be on the downside.

USD/JPY TECHNICAL ANALYSIS DAILY CHART:

Technical Overview:

USD/JPY is currently trading within a down channel.

USD/JPY is positioned below all the Moving Averages (SMA).

The Relative Strength Index (RSI) is in the selling zone, while the Stochastic oscillator suggests a negative trend.

Immediate Resistance level: 142.21

Immediate support level: 150.50

HOW TO TRADE USD/JPY

After experiencing a notable ascent, USD/JPY encountered resistance, leading to the formation of a double-top pattern and subsequent price decline. The pair is currently trading in the negative territory, having breached the previous day’s low. Presently, it is approaching a support zone, and if this zone is breached, further downside potential may be anticipated.

TRADE SUGGESTION- STOP SELL– 140.42, TAKE PROFIT AT- 137.35, SL AT- 142.66.