- At the beginning of this week's trading, the USD/JPY jumped towards the psychological resistance level of 150.00 for a very short time before retreating towards the support level of 149.55 at the time of writing the analysis.
- Reasonably, the rebound came as high US Treasury bond yields kept the dollar supported.
- Despite the correction, the US dollar remains the strongest at a time when investors are awaiting many events this week, including, the European Central Bank meeting, the release of US GDP data and the Federal Reserve’s preferred inflation measure.
- In addition, the risk of the Israeli war on the Islamic Resistance Movement (Hamas) turning into a broader regional conflict keeps markets on alert, with Gaza being subjected to Israeli air strikes and the United States sending more military equipment to the region.
Focus on Yelds
Recently, US Treasury yields are also at the top of investors' minds, with the yield on 10-year bonds standing at about 4.982 percent, after briefly jumping above 5 percent last week when Federal Reserve Chairman Jerome Powell said that the strength of the US economy and strong Labor markets which may justify continued tightening of financial conditions.
Although it did not rise at the same pace as yields, the US dollar was supported by a steady rise in yields at the long end of the US Treasury curve, driven by rising term premiums on expectations of stronger growth and fiscal slippage. Since mid-July, the US Dollar Index (DXY) has risen by 6.7 percent, but has remained roughly flat this month.
On the other hand, money market data issued by the Bank of Japan later indicated that the sudden rise in the value of the Japanese yen was not likely a result of official Japanese intervention. Analysts believe that Japan is still defending the 150-yen level against the dollar. Meanwhile, there has been some speculation that the Bank of Japan may once again adjust the yield curve policy range in its policy review scheduled for next week. Also, the Bank of Japan has also shown that it will not allow domestic yields to rise sharply.
Reuters reported yesterday that the recent rise in global interest rates is increasing pressure on the Bank of Japan to adjust its stance on controlling bond yields next week, with discussion of raising the current yield ceiling that was set just three months ago as a possibility. The benchmark yield on Japanese government bonds reached 0.86 percent, the highest level since July 2013. Consequently, Yields fell on Friday after the Bank of Japan announced more loans to encourage financial institutions to buy Japanese government bonds.
USD/JPY Forecast & Outlook
According to the performance on the daily chart, the general trend of the USD/JPY is still bullish, and we still expect a move towards the psychological resistance of 150.00 as a test tube for markets, investors, and even Japanese officials. However, ignoring it means that the pair is ready for stronger upward breakthroughs, and the closest one currently will be 150.50. and 151.30, respectively. On the other hand, over the same period, the upward trend of the USD/JPY will be broken by moving towards the support levels of 148.30 and 147.00, respectively.
Today, USD/JPY would be awaiting the announcement of the purchasing managers’ index readings for the manufacturing and services sectors from the United States, in addition to the extent of investors’ appetite for risk or not.
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