USD/JPY Technical Analysis: Monitoring Japan’s Plans

Immediately after the Japanese government announced that it would study economic plans next month, speculation increased that the opportunity for Japanese intervention in global markets to stop the collapse of the Japanese yen. This explains the selling operations of the USD/JPY pair, as well as the rest of the currency pairs against the yen and the decline of the currency pair to the level of 145.50. This was a rebound from the resistance level of 146.40 in the same session yesterday, and settled around the level of 145.85 at the beginning of the trading session on Wednesday, waiting for anything new.

The continued discrepancy between the aggressive policy of the US Federal Reserve and the Bank of Japan, which has negative interest rates, will support the survival of the bullish trend of the dollar pair against the Japanese yen.

Commenting on the future of first-in-one policy — Thomas Parkin, president of the Federal Reserve Bank of Richmond, said the Fed could lose credibility if it considered changing its 2% inflation target before it was met. “It’s not like 2% is a magic number we can never reach,” the member said at an event hosted by the Danville County, Pennsylvania Chamber of Commerce.

The US Fed’s preferred measure of inflation rose 3% from a year earlier in June, marking the smallest increase in more than two years. That’s down from as much as 7% last year when Fed officials embarked on their most aggressive policy tightening campaign in a generation. The US central bank raised the benchmark interest rate last month to a target range of 5.25% to 5.5%, the highest level in 22 years. The debate now shifts from how high US interest rates should continue to how long they should remain high.

Member Barkin, who will not vote on monetary policy decisions this year, did not say when he thinks US interest rate cuts might start. He said the criteria that might allow interest rates to be cut include knowing when inflation subsides from month to month and looking at demand that has stabilized.

A monthly Bloomberg survey of 68 economists conducted from August 11-16 showed that forecasters do not expect the central bank to cut interest rates until the second quarter of next year — three months later than the July estimate.

On Tuesday, Barkin repeated his speeches he delivered on August 3-8, in which he said that a more-than-expected decline in US inflation in June could be an indication that the US economy could experience a “soft landing” and return to growth and price stability without a devastating recession. Even if a recession does emerge, Parkin added, less disruption to the workforce due to strong demand for frontline workers, latent consumer demand for limited supply items such as cars and conservative moves by companies to manage inventory should reduce its severity.

• The general trend of the USD/JPY currency pair is still bullish, despite the technical indicators reaching strong overbought levels.
• The bulls are still waiting for opportunities for Japanese intervention in the markets to prevent a further collapse of the Japanese yen price against the rest of the other major currencies before moving the target for higher peaks.
• The closest ones are currently 146.20, 147.00, and 147.85, respectively.

On the other hand, according to the performance on the daily chart below, the USD/JPY currency pair needs to move towards the support level of 142.00 to cause a change in its direction to the downside.

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