USD/JPY Forex Technical Analysis – Stable after Kuroda Issues Fresh Warning Against Sharp Yen Declines

The Dollar/Yen is trading nearly flat on Tuesday while hovering near a more than 20-year high as investors await guidance from the Bank of Japan and the Japanese government amid concerns over valuation. Investors already know where the Fed stands.

At 07:36 GMT, the USD/JPY is trading 135.084, down 0.026 or -0.02%. On Monday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $69.35, down $1.57 or -2.21%.

BOJ’s Kuroda Meets with Japan’s Prime Minister to Talk Yen Valuation

Bank of Japan Governor Haruhiko Kuroda said on Monday the central bank hoped to respond appropriately on currency markets in close coordination with the government, issuing a fresh warning against recent sharp Yen falls, Reuters reported.

“I told the prime minister that recent rapid Yen moves were undesirable,” Kuroda told reporters after a meeting with Prime Minister Fumio Kishida at the prime minister’s official residence.

Tentative Buying

Although the divergence in monetary policies between the hawkish U.S. Federal Reserve and the dovish Bank of Japan is driving the long-term bullish tone, the current price action suggests investor indecision and impending volatility.

Bullish traders are being tentative because they don’t want to buy the high price that triggers an intervention because it would drive prices sharply lower. The real test will come if U.S. Treasury yields resume their bull market.

Higher yields will make the U.S. Dollar more attractive than the Japanese Yen, but will the buying be enough to overcome an aggressive intervention? Over the short-run, the answer is no, but over the long-run a widening interest rate differential will prevail.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 135.599 will signal a resumption of the downtrend. A move through 131.495 will change the main trend to down.

The minor range is 135.599 to 131.495. Its pivot at 133.547 is the nearest support.

The short-term range is 126.362 to 135.599. If the main trend changes to down then its retracement zone at 130.981 to 129.891 will become the primary downside target.

Daily Swing Chart Technical Forecast

Trader reaction to 135.110 is likely to determine the direction of the USD/JPY on Tuesday.

Bullish Scenario

A sustained move over 135.110 will indicate the presence of buyers. Taking out the main top at 135.599 will indicate the buying is getting stronger. This could trigger an acceleration to the upside with no major target in place.

Bearish Scenario

A sustained move under 135.100 will signal the presence of sellers. Taking out 134.538 will indicate the selling pressure is getting stronger. This could trigger a plunge into the pivot at 133.547.

Buyers could come in on the first test of 133.547, but if it fails then look for an acceleration into the main bottom at 131.495, followed by the retracement zone at 130.981 to 129.891.

Side Notes

Taking out 135.438 then closing below 135.110 will form a potentially bearish closing price reversal top. If confirmed, it could trigger the start of a 2-3 day correction, and eventually a change in trend if the selling pressure is strong enough.