Bearish view
- Sell the USD/JPY pair and set a take-profit at 127.32.
- Add a stop-loss at 131.50.
- Timeline: 1-2 days.
Bullish view
- Buy the USD/JPY pair and set a take-profit at 131.50.
- Add a stop-loss at 128.50.
The Japanese yen rebound faded last week after the first Bank of Japan (BoJ) decision and the latest Japanese inflation numbers. The USD/JPY price dropped to a low of 127.35, the lowest point since May 30. It has dropped by over 15% from its 2022 high.
BoJ decision and Japan's inflation
The BoJ concluded its first monetary policy meeting of the year last week. That decision caught many analysts and investors off-guard. In it, the bank maintained the status quo by leaving interest rates unchanged at -0.10%, where it has been in the past few years.
The surprising part was that the bank decided to leave its yield curve control program intact. As such, it will continue to maintain the 10-year bond yield to about 0.5%. Analysts were expecting the bank to abandon its yield curve control program that is costing it billions of dollars per month.
The USD/JPY exchange rate also reacted to the latest Japanese inflation. The closely watched core consumer price index (CPI) rose to a 41-year high of 4% in December. Therefore, the inflation figure means that the bank will be under pressure to intervene.
The other important catalyst for the pair was last week’s US retail sales numbers. According to the commerce department, the headline retail sales dropped sharply in December as concerns about inflation continued. Sales have been in a consistent downward trend recently.
There will be no data from the United States and Japan on Monday. As such, investors will focus on the American debt crisis. As Congress returns to work this week, the focus will be on whether there will be a deal to prevent a debt crisis in the US.
Republicans, who control the House of Representatives, have asked the White House to come up with a bill that cuts spending. Without a deal, it means that the US will be heading toward default.
USD/JPY forecast
The USD to JPY exchange rate has been in a strong downward trend in the past few months. On the daily chart, it has crashed to the 50% Fibonacci Retracement level. It is about forming a death cross, where the 200 and 50-day moving averages make a bearish crossover.
On the 4H chart, it has moved between the middle and upper side of the regression channel that has been forming since November last year. Therefore, the pair will likely continue falling, with the next target being at 127.21.
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