The US dollar has pulled back on Wednesday against the Japanese yen but remains well supported below.
USD/JPY
The US dollar has pulled back just a bit against the Japanese yen as the 158-yen level continues to be a major barrier. This is an area that I'm looking at very closely due to the fact that there is an area of resistance extending all the way to the 160-yen level. If we clear this area, then we begin to threaten a massive breakout that would go all the way back to resistance in 1990; it's that big of a situation.
If we pull back from here, and I think we very well could, we should see buyers trying to jump in and pick up US dollars. In fact, we have already seen that play out a bit during the session. The 50-day EMA is at the 155.61-yen level, and it should be a bit of a floor. If we were to break down below there, then I think it resets the entire move down to the 200-day EMA as we continue to consolidate in general.
Economic Reality and the Bank of Japan
Overall, I think this is a market that will continue to see a lot of buying on dips as the interest rate differential continues to favor the US dollar over the Japanese yen with the Bank of Japan seemingly stuck.
Although they did tighten monetary policy a bit, the reality is that the debt demographics and economic reality in Japan just doesn't warrant excessively high or even normalized rates. So, over the longer term, I still believe in buying the dip in this market and I still believe that it breaks higher given enough time. I have no interest in shorting this pair and don't really even think about it until we break below the 150-yen level.