USD/JPY Forex Technical Analysis – Spotlight on BOJ Ahead of Possible Policy Shift
The Dollar/Yen is edging higher early Wednesday as traders prepare for a possible shift at the Bank of Japan (BOJ) that could end its so-called “yield curve control” and be a precursor to adopting a tighter monetary stance.
The expectations have pushed the Yen higher against the dollar over the past few weeks. Since Jan. 6, the Yen has surged nearly 5% against the greenback.
At 01:57 GMT, the USD/JPY is trading 128.585, up 0.426 or +0.33%. On Tuesday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $72.78, down $0.19 or -0.26%.
All Eyes on Bank of Japan
The market’s focus remained on the BOJ. Speculation is building about a change or end to Japan’s yield curve control (YCC) policy, given that investors have pushed 10-year bond yields have a ceiling set by the BOJ of 0.5% and the amount of bond buying to defend it has become staggering, according to Reuters.
Under the YCC policy, the BOJ targets some short-term interest rates at -0.1% and the 10-year government bond yield at 0.5% above or below zero, aimed at achieving a 2% inflation target on a sustained basis.
Possible Trader Reactions
The current chart pattern indicates impending volatility. The BOJ could hold steady, giving the old “wait and see” excuse. But if policymakers lean toward the hawkish side then look for the USD/JPY to plunge.
Daily Swing Chart Technical Analysis
The main trend is down according to the daily swing chart. However, momentum shifted slightly to the upside with the confirmation of Monday’s closing price reversal bottom.
Since there wasn’t much of a follow-through to the upside, the move was likely fueled by profit-taking rather than aggressive counter-trend buying.
A trade through 127.227 will negate the chart pattern and signal the resumption of the downtrend. A move through 134.775 will change the main trend to up.
The minor trend is also down. A move through 132.872 will change the minor trend to up. This will confirm the shift in momentum.
On the downside, the nearest support is the May 24, 2022 main bottom at 126.362. The closest resistance is a pair of 50% levels at 130.050 to 131.001.
Daily Swing Chart Technical Forecast
Trader reaction to 128.191 is likely to determine the direction of the USD/JPY on Wednesday.
A sustained move over 128.191 will indicate the presence of buyers. If this creates enough upside momentum then look for a surge into the pair of 50% levels at 130.050 and 131.001. Overcoming the latter could trigger an acceleration to the upside with short-term targets the minor top at 132.872 and the main top at 134.775.
A sustained move under 128.190 will signal the presence of sellers. This could trigger a break into the short-term main bottom at 127.227 and the May 24, 2022 main bottom at 126.362. The latter is a potential trigger point for an acceleration to the downside with the March 31, 2022 main bottom at 121.284 the next major target.