The Japanese yen (USDJPY) continues its upward trend. Today there was an upward breakout of the sideways movement that started in mid-August. It might have been caused by the strengthening of the US dollar against all world currencies.
To a greater extent, traders are expecting additional signals about the state of the US economy before the planned meeting of the Federal Reserve (Fed) this month.
Central banks in developed and emerging markets reduced the pace and scope of interest rate hikes in August due to diverging growth prospects and inflation risks, complicating the outlook for the future.
Goshi Kataoka, a former board member of Japan's financial regulator, said Monday that the Bank of Japan (BOJ) will be able to gradually shift away from its easy monetary policy only after ensuring its 2% inflation goal has been sustainably achieved. There's still a long way to go to achieve that goal.
The Finance Ministry sold 10-year bonds on Tuesday at a lower-than-expected price. This indicates limited investors’ appetite. Another auction of 30-year bonds is scheduled for Thursday.
The drop in demand for Japanese government bonds reflects the challenges the Bank of Japan faces as it tries to change its ultra-soft policy, which has been in place for a decade. Rising interest rates will make borrowings more expensive. That could cause the yen to strengthen and put pressure on Japan's exporter-oriented stock market. Higher yields will also indicate that the government's debt servicing costs will rise next year.
Therefore, a significant tightening of monetary policy is unlikely, meaning the Japanese yen could continue to weaken.
However, the upside potential for the US dollar is limited as analysts expect to see Japanese government interventions in the 145–148 price range. They will be aimed at strengthening the local currency. Quotes have been above the 145 level for several weeks. So, the government will act when the upper boundary of the range is reached.
According to the technical analysis, the USDJPY currency pair has broken out the flat. Now it is possible to continue the growth by the rectangle value. Thus, the growth target will be the level of 148. A stop-loss should be placed at the return to the figure and below the Monday's minimum. This corresponds to the price of 146.
Growth of the USDJPY currency pair:
Take profit — 148
Stop-loss — 146
This content is for informational purposes only and is not intended to be investing advice.
