USD/JPY Forecast: Rising on Higher Treasury Yields, Fed Rate Hike Anticipation

Highlights

• USD/JPY is up due to higher US Treasury yields.
• Traders anticipate a 25 basis point rate hike by the Federal Reserve.
• Focus is on monetary policy and inflation, as well as banking system performance.

Overview

The Dollar/Yen is edging higher on Tuesday on the back of higher Treasury yields. The rise in yields is helping to widen the spread between U.S. Government bond yields and Japanese Government bond yields, making the U.S. Dollar a more attractive investment than the Japanese Yen.

At 12:57 GMT, the USD/JPY is trading 132.941, up 0.526 or +0.40%. On Monday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $70.35, up $0.22 or +0.31%.

USD/JPY Rises on Higher Treasury Yields as Traders Anticipate Possible Fed Rate Hike

As US Treasury yields increase, the USD/JPY currency pair is on the rise, which in turn is making the US Dollar more attractive to investors than the Japanese Yen.

The benchmark 10-year Treasury note’s yield has gone up by 7 basis points to 3.473%, and the likelihood of the Federal Reserve raising rates by 25 basis points next month has been priced in by traders.

The focus is on monetary policy and inflation as the Federal Reserve tries to balance economic growth and control inflation.

There is a possibility that the situation could change quickly and become dovish or hawkish depending on the banking system’s performance and lending patterns.

In terms of data, the JOLTs job openings figures for February are due at 14:00 GMT.

Daily USD/JPY Technical Analysis

The main trend is down according to the daily swing chart, but the overnight price action suggests the trend can turn higher rather quickly if buyers can take out the nearest main top at 133.756. A trade through 129.641 will signal a resumption of the downtrend.

The long-term retracement zone at 132.569 to 131.308 serves as the key support, which halted the selling at 132.174 in the earlier session.

The key resistance is the short-term retracement zone at 133.776 – 134.752.

Daily USD/JPY Technical Forecast

Trader reaction to the long-term 50% level at 132.569 is likely to determine the direction of the USD/JPY on Tuesday.

Bullish Scenario

A sustained move over the main 50% level at 132.569 will indicate the presence of buyers.  Look for a surge into the resistance cluster at 133.756 – 133.776 if this move creates enough upside momentum.  Overtaking this area will indicate the buying is getting stronger. This could trigger an acceleration into the next key upside target at 134.752.

Bearish Scenario

A sustained move under 132.569 will signal the presence of sellers. Taking out 132.174 will indicate the selling is getting stronger. This could extend the weakness into 131.699 – 131.308.