The USDJPY currency pair is slowly recovering from last week's large-scale sell-off. The prices held above the level of 138 and are now developing an upward movement, trying to compensate for at least part of the losses. Quickly returning to the local highs at 145 will not be easy, but the range of 140-140.5 seems to be an achievable target for bulls.
The entire fall of USDJPY is caused by the dollar's weakness, while the yen still has no significant strengthening factors. Now the dollar index is attempting to rebound from yearly lows, which might again put pressure on the Japanese currency. Both economic statistics and comments of Japanese officials are clearly unfavorable for the yen's growth.
Yesterday, Bank of Japan Governor Kazuo Ueda said that there is still a long way before sustainably achieving the 2% inflation target. This is another sign of his determination to maintain an ultra-loose monetary policy. Since the price growth rate has exceeded the 2% level for more than a year, market participants regularly expect at least hints of the Japanese regulator to change its policy. However, the matter has not yet gone further than discussions within the Bank of Japan.
Friday's inflation statistics in Japan for June may become another cause for speculation on monetary policy changes. The core rate is expected to rise from 3.2% to 3.3%. For most other countries, the increasing price growth rate would be a prerequisite for raising interest rates and strengthening the national currency, but not in the yen's case. Probably, there will be the same comments about an imminent slowdown in inflation and the lack of need for adjustments in monetary policy. All these factors do not play in favor of the yen.
In addition to fundamentals, technical indicators also support the growth of USDJPY. The RSI is preparing for an upward reversal from the overbought zone, and the Stochastic indicator has already formed a full-fledged buy signal. The nearest target for the USDJPY to rise is the range of 140-140.5.
The following trading strategy may be offered:
Buy USDJPY for the current price. Take profit 1 – 140. Take profit 2 – 140.5. Stop loss – 138.5.