The USDJPY currency pair declined sharply during yesterday’s trading session. The quotes broke through the lower limit of the monthly sideways trend close to 156.5, which further added to the selling pressure. The next target for the correction of the dollar-yen ratio could be the Fibonacci level of 38.2% (155). Taking into account the sharply increased activity of the bears, this level may be achieved this week or early next week. The news also favors this scenario.
The Japanese currency started strengthening after yesterday’s speech by the country's central bank governor. Kazuo Ueda confirmed the intention to consider a rate hike at the meeting on January 24, although the market was previously leaning towards a hike in March. The Bloomberg experts believe the Bank of Japan seeks to prevent another collapse of financial markets, which was caused by the sudden tightening of monetary policy in July last year. Now the Bank’s officials are preparing traders for such actions in advance.
Chief Japan economist at JPMorgan Securities Ayako Fujita supports an increase in the country's borrowing costs next week. In her opinion, if Trump’s inauguration does not bring any unpleasant surprise to Japan, the central bank will not have reasons to postpone raising its rate until March. Fujita draws attention to the forecast of a spring increase in salaries at Japanese companies of more than 4.7%. Despite being below last year’s rise of 5.1%, the move is clearly proinflationary in nature.
Statistics for December confirm price growth problems in Japan. Producer inflation remains at 3.8%, which is the highest level in a year and a half. SMBC Nikko Securities analysts expect its further growth over 4% due to last month’s weakening of the yen. This could reinforce the hawkish sentiment among Bank of Japan officials, supporting the downward movement of USDJPY.
The RSI indicator is moving downward, but it is still far from the oversold zone. In this regard, USDJPY quotes have every chance of reaching 155.
Consider the following trading strategy:
Sell USDJPY at the current price. Take profit – 155. Stop loss – 156.5.
This content is for informational purposes only and is not intended to be investing advice.
