Go short on USDJPY with 152.00 in view

USDJPY is currently hovering around 158.20. The US dollar remains strong, but the Bank of Japan’s gradual monetary tightening creates the prerequisites for a corrective decline in the pair.

The significant rate gap between the Federal Reserve (Fed) and the BoJ continues to support the greenback. Last month, the US regulator raised borrowing costs to 4.00%. The meeting minutes—published this week—confirmed the central bank’s readiness to keep fighting inflation. Demand for the American currency and USD-denominated assets stays robust due to elevated Treasury yields.

However, further strengthening of the dollar may be limited by a weaker US labor market. In September, only 29,000 jobs were created against the projected 90,000, while unemployment rose to 4.2%. This sluggish data reduced the likelihood of another Fed hike in October, which limits the USDJPY’s upside potential.

Now, let’s focus on Japan. The yen is underpinned by a recent shift in the BoJ’s policy. Last month, the Asian regulator increased its key rate to 1.25%—an impressive 31-year high. What’s more interesting, officials stated their willingness to maintain this hawkish stance if inflation remains stubborn.

So, what should we expect within a month? Given the current fundamental picture, the pair is likely to slide to the 152.00 support level. The risk of intervention by Japanese authorities, which could strengthen the yen, serves as additional evidence of a looming correction.

The final recommendation:

— Sell USDJPY at the current price of 158.20, targeting 152.00 within one month.

— Place a Stop Loss order at 160.50 to manage risks if the market plays against us.