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JAPANESE YEN TALKING POINTS

USD/JPY struggles to hold its ground going into the end of the week, with U.S. Treasury Yields highlighting a similar dynamic, and the dollar-yen exchange rate may continue to consolidate ahead of the Federal Open Market Committee (FOMC) interest rate decision on June 13 as it snaps the bullish series carried over from the previous week.

Image of daily change for major currencies

Dollar-Yen Rate Snaps Bullish Sequence Ahead of May-High

Image of daily change for USDJPY

With the Bank of Japan (BoJ) in no rush to wind down its Quantitative/Qualitative Easing (QQE) Program with Yield-Curve Control, the Fed’s normalization cycle may continue to influence USD/JPY over the remainder of the year as the central bank pledges to further normalize monetary policy over the coming months.

Expectations for higher U.S. interest rates should underpin the greenback as the FOMC remains on track to carry its hiking-cycle into 2019, and the committee may continue to prepare U.S. households and businesses for higher borrowing-costs as the economy nears full-employment, while inflation runs above the 2% target.

Image of Fed interest rate dot plot

However, little to no changes in the longer-run interest rate forecast (dot-plot) may spark headwinds for the U.S. dollar as market participants scale back bets for four rate-hikes in 2018, with USD/JPY at risk of exhibiting a more bearish behavior over the near-term especially as both price and the Relative Strength Index (RSI) fail to preserve the bullish formations from earlier this year.

USD/JPY DAILY CHART

Image of USDJPY daily chart
  • Monthly opening range remains in focus for USD/JPY as the pair appears to have marked a failed attempt to test the May-high (111.40), and the dollar-yen exchange rate may continue to give back the rebound from the previous week as it snaps the recent series higher highs & lows.
  • Close below the 109.40 (50% retracement) to 110.00 (78.6% expansion) region raises the risk for a move back towards 108.30 (61.8% retracement) to 108.40 (100% expansion), with the next downside region of interest comes in around 106.70 (38.2% retracement) to 107.20 (61.8% retracement).

For more in-depth analysis, check out the Q2 Forecast for the Japanese Yen

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.