- The US dollar slid quickly against the Japanese yen on Friday before stabilizing, with buyers expected to appear on further dips.
- Wide interest rate differentials and limited BoJ tightening prospects continue to underpin longer-term bullish pressure.
The US dollar dropped against the Japanese yen rather quickly during the trading session on Friday, as we are testing the 156.50 yen level. That being said, we are seeing a little bit of a bounce at this point at the end of the session, and it suggests that we continue to see a little bit of hesitation on the downside. Even if we do fall from here, we will likely continue to see plenty of buyers near the 155 yen level, followed by the 154 yen level, and then ultimately the 153 yen level, where the 50-day EMA is racing toward it.
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Underlying Rate-Differential Support
The 158 yen level has been a bit of a barrier, and that's not a huge surprise considering that it's been important in the past. But I look at this through the prism of a market that has a major interest rate differential, and therefore, you have to keep in mind that a lot of professional traders are collecting swap at the end of the session.
Ultimately, it's not until we are looking at this as a market that cannot be shorted anytime soon, and really, it's not until we break down below the 150 yen level. All things being equal, this is a very volatile market, but with the Bank of Japan in a situation where they may not be able to tighten monetary policy anytime soon, and after the most recent election, it certainly looks like there won't be the political will. I do think it's probably only a matter of time before we go higher, but this pullback makes sense as people may have been taking profit heading into the weekend.
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