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USD/JPY prediction: pattern points to more Japanese yen crash

By: Invezz
Bank of Japan

The USD/JPY exchange rate sits at an important resistance level as the Japanese yen woes continue. It has risen in the past four straight weeks and is slowly nearing the important resistance point at 152. 

Japanese yen woes continues

The Japanese yen has been the worst-performing currency in the developed world. It has slumped by 20% from its highest level in 2023. Worse, it has lost half of its value since the Covid-19 pandemic started in 2020.

The currency has continued its downward trend even after the Bank of Japan delivered its first interest rate hike in over 17 years in March. It moved rates from minus 0.10% to 0.0% as most analysts were expecting.

Therefore, the USD/JPY pair has jumped because analysts expect that the gap between the Federal Reserve and the BoJ rates will be wider for longer.

In the United States, there are signs that the Fed will not deliver the three rate cuts it guided on in its last meeting. That’s because the US economy is doing modestly well, with the manufacturing sector seeing some strong gains. The PMI rose to 52.2 in March, the first time it expanded since 2022.

The country’s economy is expected to be growing. According to the Atlanta Fed, the estimate is that it grew by 2.8% in Q1. The unemployment rate remains below 4% while core inflation is almost double the Fed’s target of 2.0%.

There are signs that inflation will remain at an elevated level this year. For example, the average gasoline price has jumped to $3.6 as the West Texas Intermediate (WTI) has jumped to over $85 a barrel. 

Therefore, the Fed may not need to cut interest rates as it predicted in its March monetary policy meeting. As such, the gap between US and Japanese interest rates will continue creating an interesting carry trade opportunity. Carry trade is a situation where investors abandon low-yielding assets to higher-rated ones.

Further, it is unclear whether Japan’s interventions will help to stimulate the yen. Economists expect the bank will do what it did in 2022 as the currency was falling. At the time, the bank spent trillions of yen in currency interventions. In a note, an analyst at Daiwa said:

“An intervention of about ¥1 trillion in size may lift the yen by slightly less than one yen per dollar when calculating based on the currency’s demand and supply conditions.”

USD/JPY technical analysisUSD/JPY

USD/JPY chart by TradingView

Turning to the weekly chart, we see that the USD to JPY exchange rate is sitting at a multi-decade high. A closer look shows that it has formed an ascending triangle pattern, which is a popular sign of a bullish continuation.

The pair has remained above all moving averages, a sign that bulls are in total control. Therefore, the outlook for the USD/JPY is extremely bullish for now. A break above the upper side of the triangle pattern could see it surge to over 153.

The post USD/JPY prediction: pattern points to more Japanese yen crash appeared first on Invezz

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