Yesterday USDJPY reached a 4 month high, just below the 152 level. The rate has jumped 3.5% in just one week, which is very volatile for the currency market. It is likely that many traders are taking profits and closing long positions, causing the price to pull back. Fundamentally, the yen remains weak against the dollar, but above the 150 level, the potential for further USDJPY gains looks unattractive.
As expected, the Bank of Japan raised its key interest rate for the first time since 2007 at its meeting on 19th March. This ended 8 years of negative borrowing costs. The head of the regulator, Kazuo Ueda, noted the continued rise in service prices and significant wage increases by large companies in annual talks with labor unions. According to him, the Bank of Japan does not want to risk a sharp rise in inflation and is gradually moving towards a normalization of monetary policy.
Market participants expect further interest rate hikes in Japan. They see a 51% chance that the next move will come in July, with the rate reaching 0.25% by the end of the year. Traders had previously been looking for October, but the yen's sharp fall may force officials to act sooner. At least verbal interventions have already been made.
Today, Japan's Finance Minister Shunichi Suzuki reiterated that the government is paying more attention to sharp movements in the value of the national currency. Suzuki did not answer journalists' questions about the possibility of currency intervention, but even without it, the mass selling of the yen has come to nothing. Traders are aware of the risk of intervention by the Japanese financial authorities, so the buying activity in USDJPY at current levels has diminished noticeably.
From a technical perspective, the Stochastic Indicator on the daily chart of USDJPY also supports a deeper correction. The bears may choose the key 150 level as their main short-term target.
Consider the following trading strategy:
Sell USDJPY at the current price. Take profit - 150. Stop loss - 151.7.
Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion
This content is for informational purposes only and is not intended to be investing advice.
