USD/JPY Weakness Puts 119.286 – 117.914 RT Zone on Radar

The Dollar/Yen is trading weaker at the mid-session on Thursday as the Japanese currency tries to regain footing after heavy selling earlier in the week.

The Forex pair soared some 7% higher through March as the Bank of Japan (BOJ) stuck with its dovish policy settings – this week buying bonds to defend its yield target – while central banks in the rest of the world are hiking rates.

At 17:05 GMT, the USD/JPY is trading 121.597, down 0.231 or -0.19%. The Invesco CurrencyShares Japanese Yen Trust ETF (FXY) is at $77.02, up $0.08 or +0.10%.

The ultra-dovish BOJ is struggling against the tide of rising global interest rates as central banks elsewhere race to beat accelerating inflation, with the international spike in yields dragging Japan’s yields higher.

Complicating that challenge for Tokyo policymakers are the rising costs of imports brought by a weakening currency and global fallout of the Ukraine war.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 125.101 will signal a resumption of the uptrend. A move through 114.651 will change the main trend to down. This is highly unlikely, but there is room for a normal 50% to 61.8% correction.

The main range is 113.472 to 125.101. Its retracement zone at 119.286 to 117.914 is the primary downside target zone.

Daily Swing Chart Technical Forecast

The direction of the USD/JPY into the close on Thursday is likely to be determined by trader reaction to 121.827.

Bearish Scenario

A sustained move under 121.827 will indicate the presence of sellers. Taking out 121.181 will indicate the selling pressure is getting stronger. If this continues to generate enough downside momentum then look for an eventual pullback into the main retracement zone at 119.286 to 117.914.

Bullish Scenario

A sustained move over 121.827 will signal the presence of buyers. If this generates enough upside momentum then look for the buying to possibly extend into 123.193. Overtaking this level will indicate buyers are gearing up for a drive into the main top at 125.101.

Side Notes

Last week’s close was 122.093, which means the USD/JPY is currently trading lower for the week. This puts it in a position to form a potentially bearish weekly closing price reversal top. If confirmed next week, this could trigger the start of a 2 to 3 weekly correction with 119.286 to 117.914 the primary downside target area.