As was the performance at the end of last week’s trading, the price of the US dollar against the Japanese yen (USD/JPY) moved amid profit-taking selling operations that pushed it towards the 148.10 support level, its lowest in a month and a half. During this month’s trading, the currency pair jumped towards the 151.90 resistance level, its highest in a year. However, this is considering the continuing discrepancy between the US Central Bank’s strict policy and the Bank of Japan, which has negative interest rates. Recently, the USD/JPY pair is stable around the 148.45 level at the time of writing the analysis, prior to announcing the content of the minutes of the last meeting of the US Federal Reserve.
What is the future direction of the USD/JPY pair in the coming days?
Goldman Sachs says a material decline in the USD/JPY exchange rate is somewhat unlikely, as a “stronger for longer” forex regime will define the coming months. Adding, “We continue to see limited room for appreciation in the Japanese yen,” says the weekly note from Goldman Sachs's currency analysis team. Also, there is a growing consensus among the Forex research community that 2024 will be the year the dollar declines in response to Federal Reserve interest rate cuts and improving global economic growth.
One expression of this dollar weakness is the decline in the dollar exchange rate against the yen, given the significant rise that the pair has witnessed in recent years, rising by 44% since its lowest levels in 2021 to testing levels at the 150-resistance level. Moreover, recent days have witnessed the decline of the dollar against the yen. Shortly, USD/JPY is off 150 pip levels, and market chatter suggests that this could be a long-term high mark for the pair before a sustained decline.
However, Goldman Sachs' analysis suggests that the decline is largely due to a positioning adjustment rather than any fundamental shift in macroeconomic fundamentals. Goldman Sachs adds in its view: “Equities and the 10-year interest rate spread were virtually unchanged during that period, suggesting that unwinding of long USD/JPY positions may have been the biggest driver.”
The investment bank's analysts continue to expect the Japanese yen to be mainly driven by macroeconomic fundamentals. Especially, as it is "more pessimistic than the market" about a potential exit from negative interest rates by the Bank of Japan.
The coming months will certainly not be without a stronger Japanese yen, as Goldman Sachs says there will be periods of lower real US interest rates as the market presses on the “Fed is back” narrative, which should ease some of the upward pressure. For USD/JPY. “But we still see limited room for the Japanese yen to appreciate, as any decline in US bond yields is likely to be short-lived without a signal from the FOMC that non-recessionary cuts are on the table earlier – or, Goldman Sachs adds. “More importantly, without evidence of an imminent US recession.”
Shortly, The USD/JPY outlook is bumpy, but “we see risks tilted towards a ‘stronger for longer’ dollar in 2024, likely coinciding with continued yen weakness.”
USD/JPY Technical analysis:
According to the performance on the daily chart below, there is a clear downward shift in the performance of the price of the currency pair US Dollar against the Japanese Yen (USD/JPY). Thus, the move towards the support level of 147.30 is confirmation of the start of the bears’ control over the trend. Therefore, this may happen if the dollar does not gain positive momentum today from the announcement of the content of the minutes of the last meeting of the US Federal Reserve. On the other hand, over the same period, a return to the psychological resistance of 150.00 confirms that the bulls will return strongly to new record high levels. In general, the USD/JPY currency pair will move depending on the future of central banks’ policies and the pace of investors’ appetite for risk or not.
.jpeg "USD/JPY (Daily Chart)")