USD/JPY Forecast: Continues to Power Higher

Given the current interest rate situation around the world, it’s advisable to avoid shorting this currency pair for the time being. Traders should remain cautious and vigilant, keeping an eye on market trends and potential risks. 

• During Tuesday’s trading session, the USD/JPY demonstrated some upward momentum, as the latter currency continues to suffer due to the Bank of Japan’s monetary policy.
• With the 10-year JGB pressing 50 basis points, the Bank of Japan has had to step in and start printing yen to buy bonds.
• Japan is currently faced with the choice of accepting either a weakening currency or higher interest rates.

As interest rates rise globally, the pressure on the bond market in Tokyo is expected to increase, leading to further depreciation of the Japanese yen. As the Bank of Japan is the only major central bank offering a quantitative easing, the yen has become an easy target for currency traders. As a result, not only is the US dollar expected to continue to appreciate against the yen, but it’s also likely that other currencies will follow suit. The British pound, for instance, has been performing exceptionally well against the yen.

It’s worth noting that the ¥137.50 level is a crucial area of resistance to watch, as it was a previous barrier for both support and resistance. This level is likely to have a certain degree of market memory, which means that breaking through it will require significant momentum. Short-term pullbacks are expected, but they are likely to present buying opportunities. The ¥135 level is expected to serve as support, as it’s a psychologically significant level and an area that has seen a lot of noise in both directions. The 200-Day EMA is located near the ¥134 level, and the 50-Day EMA is preparing to cross above it, which could trigger the “golden cross” indicator that many traders use for a longer-term “buy-and-hold” approach. While I am not a major proponent of this indicator, it’s yet again just one more reason to think that the market could take off to the outside.

Given the current interest rate situation around the world, it’s advisable to avoid shorting this currency pair for the time being. Traders should remain cautious and vigilant, keeping an eye on market trends and potential risks. The market may experience significant volatility, so traders should focus on implementing appropriate risk management strategies to minimize their exposure to potential losses. While the US dollar may continue to appreciate against the Japanese yen, traders should maintain a level head and focus on risk management to ensure that they are not taking unnecessary risks.