- The USD/JPY has rallied significantly to reach the ¥145 level during the trading session on Wednesday but gave back the gain as we continue to see a lot of volatility and perhaps noise.
- This is a market that has seen a bit of an overextension of the US dollar, so a pullback would make a certain amount of sense.
- Furthermore, you are seeing the US dollar pullback against other currencies at the same time, so this is obviously a bit of profit-taking.
If we do fall from here, it’s likely that the ¥140 level should be supported, as it was the previous resistance. There is a certain amount of “market memory” in this general vicinity, so I do think that it is probably only a matter of time before the buyers would return if we revisit this level. We have been in a strong uptrend for a while, and that won’t change anytime soon as we continue to see the same fundamental reasoning for the market.
Yen Likely to Drift Lower
Keep in mind that the Bank of Japan continues to fight against the rising interest rates, meaning that they are essentially “printing yen” as they buy unlimited bonds. In that scenario, it makes quite a bit of sense that the Japanese yen would continue to lose value. I believe that it is probably only a matter of time before we see the Japanese yen fall further, but the fact that we had rallied so rapidly does in fact suggest that we needed to pull back.
On the other hand, if we were to break above the ¥145 level, then it’s likely that we could go much higher over the longer term, and it does more likely than not seem to be the case as to what will happen. Nonetheless, this is a simple argument of “we have come too far too quick”, and therefore it makes a lot of sense that we would see the US dollar lose a little bit of momentum. It is not until the Federal Reserve changes its monetary policy, or perhaps even the Bank of Japan does before we see a change in the overall attitude of this pair. That’s not coming anytime soon, so look for value in the greenback and take advantage of it.
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