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USD/JPY Pushes Higher Amid BoJ Uncertainty and Strong US Treasury Yields
Economic
Summary:
The USD/JPY pair continues its upward momentum, fueled by BoJ uncertainty, rebounding US Treasury yields, and fading safe-haven demand.
Buy
CLOSEDUSDJPY
End Time
155.800
Entry Price
160.000
TP
153.000
SL
147.409 +1.175 +0.80%
2800
Points
Loss
153.000
SL
153.000
CLOSING
155.800
Entry Price
160.000
TP
The USD/JPY pair has maintained its upward trajectory, extending its turnaround from a one-week low and continuing its march toward the mid-155.00s as it heads into the European trading session on Wednesday. This surge is largely driven by a combination of fading safe-haven demand, ongoing uncertainty surrounding the Bank of Japan’s (BoJ) policy direction, and the positive influence of rebounding US Treasury bond yields. Together, these factors are propelling the pair higher, with the Japanese yen (JPY) under pressure as a result of shifting market conditions.
The BoJ’s reluctance to provide concrete guidance on its next steps regarding interest rates has contributed significantly to the JPY’s weakness. Earlier this week, BoJ Governor Kazuo Ueda cautioned against maintaining ultra-low interest rates for too long, suggesting that a rate hike could be on the horizon. However, Ueda’s comments lacked clarity on the timing of such a move, leading to increased uncertainty about the future path of Japan’s monetary policy. This ambiguity has left investors wary, further eroding confidence in the yen and supporting the USD/JPY’s upward momentum.
On the flip side, the US Dollar has been buoyed by the rebound in US Treasury bond yields, which have risen sharply in recent sessions. This rally in bond yields has reignited demand for the US Dollar, as investors seek higher returns compared to the lower-yielding JPY. The rise in Treasury yields comes amid expectations that the Federal Reserve is likely to take a more measured approach to easing in the near future. While the USD has consolidated its recent pullback from the year-to-date high, its downside remains capped by these expectations of a less aggressive stance from the Fed.
Further supporting the USD, Federal Reserve Bank of Kansas President Jeffrey Schmid commented earlier this week that large fiscal deficits would not trigger inflationary pressures, as the Fed would take necessary actions to prevent such outcomes. However, Schmid noted that this could lead to higher interest rates, which would further enhance the appeal of the US Dollar in the global markets.
Meanwhile, broader geopolitical events are also influencing currency markets, with Russian President Vladimir Putin’s approval of a new nuclear doctrine this week adding to the market’s caution. This change came just days after US President Joe Biden authorized the use of long-range American missiles against military targets inside Russia, heightening tensions. Despite these developments, the White House has stated that the US does not plan to adjust its nuclear posture in response, which has helped temper safe-haven demand in the market.
For the Japanese Yen, traditionally viewed as a safe-haven currency, the reduction in safe-haven flows has exacerbated its weakness. With the market in a more risk-on mood, and investors focusing on higher-yielding assets, the JPY has struggled to maintain its footing. This shift has further contributed to the prevailing bullish trend in the USD/JPY pair.
Japan’s economic data has also played a role in shaping market sentiment. On Wednesday, the Ministry of Finance reported that Japan’s total exports had increased by 3.1% year-on-year in October, while imports grew by a modest 0.4%. Despite this, Japan’s trade balance showed a deficit of ¥461.2 billion, a sign that the country’s economic fundamentals are under strain. With Japan’s exports facing challenges amid global uncertainties, and the BoJ’s reluctance to hike rates aggressively, the yen’s position remains fragile.
Technical Analysis
From a technical perspective, the USD/JPY pair continues to show a bullish bias, with price action remaining well supported above the bullish channel’s support line. The recent price action suggests that the pair is poised to extend its upward trajectory toward a test of the 156.80 level. A breach of this resistance level would pave the way for further gains, with the next major target seen at 160.00.
Given the current trend dynamics, we expect to see continued positive momentum for the USD/JPY in the coming sessions. However, should the price break below the 154.15 support level, this could signal the start of a bearish correction, with the first target for such a move located at 152.70.
TRADE RECOMMENDATION
BUY USDJPY
ENTRY PRICE: 155.80
STOP LOSS: 153.00
TAKE PROFIT: 160.00
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