USDJPY soars amid blocking of Trump’s trade duties in court

From the beginning of the week, the USDJPY currency pair has shown a strong rebound from the monthly minimum of 142.2. Now the buyers of the dollar against the yen are facing the level of 146.5, corresponding to the lows of March. If this boundary is passed, the bulls will advance toward the May high of 148.5. The technical picture does not prevent this scenario, and the fundamental background has changed sharply in favor of the US currency in recent hours. 

On Wednesday, the US Court of International Trade blocked Donald Trump's trade duties. According to the judges, the president did not have sufficient authority to make these decisions, and must cancel most of the tariffs on imports of foreign goods within 10 days. It is likely that the current American authorities will turn to the Court of Appeals or even the Supreme Court to defend their position. One way or another, the topic of duties will stop putting pressure on the dollar exchange rate, at least for a while.

At the same time, the investors’ interest in yen-denominated assets deteriorated markedly. Yesterday's auction of 40-year Japanese government bonds recorded the lowest demand since July of last year. Despite the growth of securities yields, it is becoming more and more difficult to cover borrowing needs without the Bank of Japan's (BOJ) participation.

According to Bloomberg data, the BOJ holds more than 50% of all government bonds in the country. To fight inflation, the regulator is tightening monetary policy, reducing its bond portfolio by 400 billion yen ($2.76 billion) per quarter. It's a small amount in terms of the Japanese securities market, but it's already putting pressure on investors. In addition, Japan, as the country with the highest ratio of government debt to GDP in the world, cannot offer traders too high yields on bonds.

The signal to buy USDJPY has been confirmed by Stochastic Indicator lines that have crossed and are now moving upwards. The nearest targets are the 146.5 and 148.5 levels.

Consider the following trading strategy:

Buy USDJPY in the range of 145-146. Take profit 1 – 146.5. Take profit 2 – 148.5. Stop loss – 142.2.