The US Dollar fell against the Japanese Yen on Monday as traders are worried about the 160 level due to previous action.
USD/JPY
The US Dollar fell against the Japanese Yen as we are starting to see significant resistance near the well-known battlefield of 160 Yen. This is a market that's been in an aggressive multi-week uptrend, suggesting that there are plenty of buyers out there willing to get involved. We've seen a 4% rally in this market from the February lows and the pair is currently consolidating in general.
There is a significant amount of noise near the 160 Yen level, and I do think you have to pay close attention to whether or not we can break above there. There are a couple of things to keep in mind as to what could be driving this pair. The first thing of course is that Japan is a massive net importer of oil. With Brent crude sitting above $100 a barrel due to the conflict in the Middle East, Japan's trade deficit is getting worse, which fundamentally devalues the Yen.
A Significant Yield Advantage for the Dollar
Interestingly, the Yen has lost its safe-haven status to gold and Bitcoin during this conflict. Because the war is driving energy prices up, it hurts Japan's economy more than it helps its currency status. That being said, the Bank of Japan and Ministry of Finance has escalated its verbal intervention warning of one-sided moves. History shows that the 160 Yen level is where they typically deploy billions of dollars to sell US Dollars and buy Japanese Yen.
There is policy divergence out there and while the Bank of Japan, which meets on Thursday, is expected to hold at 0.75%, any hint of hawkishness of a rate hike in April could cause a pretty significant drop. Meanwhile, the Fed, which is meeting on Wednesday, is expected to hold, maintaining a massive yield advantage for the dollar. Ultimately, I think we're in a very dangerous area, but if we do sell off, at the first signs of a bounce, I'm more than willing to get back into the trade.