USD/JPY Forex Technical Analysis – Jump in Treasury Yields Helping Dollar/Yen Recover from Abe Weakness

The Dollar/Yen is inching higher late Friday after posting a volatile two-sided trade earlier in the session. Overnight, the Forex pair lost ground on safe-haven buying of the Japanese Yen after former Japanese Prime Minister Shinzo Abe was shot and killed while delivering a speech in the western city of Nara ahead of upper house elections on Sunday.

At 19:00 GMT, the USD/JPY is trading 136.084, up 0.094 or +0.07%. The Invesco CurrencyShares Japanese Yen Trust ETF (FXY) is at $68.78, down $0.01 or -0.02%.

The USD/JPY recovered after early weakness following a surge in U.S. Treasury yields. Yields rose after the release of stronger-than-expected U.S. labor market data. The results eased worries about the economy while adding to concerns about aggressive interest rate hikes by the Federal Reserve.

Treasury yields jumped on Friday as traders digested strong numbers in the latest jobs report that is likely to keep the Federal Reserve aggressive against inflation.

The strong report would likely mean another sharp interest rate hike in July as the Federal Reserve focuses on bringing down inflation. Meanwhile, the Bank of Japan is widely expected to maintain its ultra-dovish monetary policy.

Short-Term Outlook

Trader reaction to the minor pivot at 135.877 is likely to determine the direction of the USD/JPY into the close on Friday.

Bullish Scenario

A sustained move over 135.877 will indicate the presence of buyers. Overcoming the minor top at 136.363 will indicate the buying is getting stronger. If this creates enough upside momentum then look for a possible late session surge into the 20-year high at 137.003. Taking out this level could trigger an acceleration to the upside.

Bearish Scenario

A sustained move under 135.877 will signal the presence of sellers. This could trigger a break into the minor bottom at 134.954. Taking out this level will change the minor trend to down and shift momentum to the downside.

The main bottom at 134.750 is another potential target. Taking out this level will change the main trend to down with the next target a short-term retracement zone at 134.249 to 133.599.