It is natural that movements remain very quiet for the performance of the USD/JPY amid the holiday season, which affects liquidity and risk sentiment for investors. Recently, the USD/JPY is stabilizing around the 142.45 level at the time of writing the analysis. Also, The Japanese currency had risen by more than 6% against the dollar from its November lows, but if history is any guide, the positioning of yen suggests the trend is nearing its end.
Some analysts say that's because when institutional investors turn bullish on the yen during the past year, it quickly reverses. After managers turned to buying the yen for the first time since May, according to a report by the Commodity Futures Trading Commission for the week ending December 19. Currently, traders are pinning their hopes on the yen's strength as the Bank of Japan prepares to raise interest rates while its peers from other central banks around the world are preparing to focus on cutting borrowing costs.
Moreover, After the yen rose in early January, managers turned from bearish to bullish. Therefore, the currency fell by about 8% in the weeks that followed. A similar shift occurred in March. The expected rise in the yen price for 2023 never materialized, and instead the currency fell, but - after three years of declines - forecasters are once again calling for a higher yen price next year. While the Bank of Japan has hinted that it is nearing the end of the world's last negative interest rate regime, the central bank is keeping investors on guard by holding back on bets on a near-term pivot and offering no clarity on the timing.
However, despite the expected gains in the yen, it was recommended to sell the Swiss franc against the Japanese currency, as the pair reached its highest level in decades in mid-November. Meanwhile, the yen has lost nearly 8% against the US dollar this year, making it the worst performer among its peers in the developed world's currencies.
In contrast, The US Federal Reserve is walking a tightrope, as it seeks to slow the economy enough by raising US interest rates to cool inflation, but not so much that it pushes the country into recession. So, traders are still largely betting that the Fed will cut its key interest rate by at least 1.50 percentage points by the end of next year, according to data from CME Group. Furthermore, the federal funds rate is currently between 5.25% and 5.50%, its highest level in more than two decades.
Concurrently, the Federal Reserve issued forecasts earlier this month showing that typical policymakers expect to cut US interest rates several times next year, but likely only half what Wall Street markets expect. Thus, many see more optimism about the pace of interest rate cuts early in the year, and that the surge in stocks since late October in anticipation of such support may be overdone.
USD/JPY Technical analysis and Expectations Today:
According to the performance on the daily time frame chart, the price of the US dollar against the Japanese yen (USD/JPY) is still on a downward correction path. Therefore, the opportunity to move towards the psychological support of 140.00 is strongly present if the dollar remains weak and the Japanese Central Bank’s signals continue that the policy tightening date is near. On the other hand, if the bulls succeed in pushing the currency pair towards the resistance level of 145.85, this may be a break of the current bearish channel. Finally, USD/JPY currency pair may remain in narrow ranges until all markets return to normal operation next week.
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