The Japanese yen has retreated from recent highs as the US dollar rebounds. This change is occurring against the backdrop of contrasting monetary policy signals from the Bank of Japan and the Federal Reserve, which are impacting the yen’s performance and market outlook.
The yen (Symbol: USDJPY) has eased towards 145 per dollar, moving away from a three-week high as the US dollar recovers. While the yen previously strengthened due to various domestic and international factors, it now faces renewed pressure as the US dollar gains traction.
Technical analysis
The USD/JPY pair has been on a path of recovery, ending at 144.845 with a slight increase of 0.26%. This comes after hitting a low of 143.445.
USD/JPY slips as dollar rebounds, as observed on the VT Markets app.
Currently, the USD/JPY pair is working to regain momentum, trading just under crucial Exponential Moving Averages (EMAs), notably the 72-period EMA, which serves as a resistance point.
The MACD indicator is indicating a potential bullish crossover, with the MACD line nearing the signal line and the histogram showing early positive shifts. While the pair is showing signs of momentum, it remains in a consolidation phase.
Traders should monitor the resistance level around 145.000, a significant psychological barrier that could influence the pair’s next direction. A move above this level might signal further gains, potentially targeting around 147.000. Conversely, if the pair does not surpass this resistance, it could revisit support levels near 143.445, where it recently found lows.
Diverging monetary policies impacting the yen
The Japanese yen’s movement is significantly influenced by the differing monetary policies of Japan and the United States. Recently, BoJ Governor Kazuo Ueda suggested the possibility of future rate hikes if the bank’s economic forecasts are met.
This has provided some support to the yen, as markets speculate that Japan may gradually shift away from its extremely accommodative monetary policy.
In contrast, Federal Reserve Chair Jerome Powell’s recent comments at the Jackson Hole symposium hinted at possible adjustments to US monetary policy. Powell’s remarks were seen as dovish by the market, leading to expectations of potential rate cuts in the near future.
This policy divergence between the BoJ and the Fed has introduced volatility for the yen, with traders assessing the comparative strength of each currency.
Short-term currency outlook
The Japanese yen’s performance will likely be affected by upcoming domestic economic data, including figures on industrial production, retail sales, and inflation. These data points will offer clues about the future direction of BoJ policy and could impact the yen’s trajectory.
In the short term, traders might look to capitalise on potential market fluctuations around key economic releases.
