USD/JPY Outlook – A Fresh Multi-Decade High But the Move Looks Tired

[MongiIG]

Jul 11, 2022 | DailyFX
Nick Cawley, Strategist

USD/JPY PRICE AND CHART ANALYSIS

• Bank of Japan warns on the economy.
• USD/JPY tests resistance around 137.00.

Bank of Japan Governor Haruhiko Kuroda today warned that the outlook for the economy remains uncertain due to rising commodity prices and that the central bank would do whatever is necessary to help the economy grow. Governor Kuroda also said that Japan’s financial system was robust, that the economy was starting to pick up, and that the central bank would keep interest rates anchored at ‘current or lower levels’. Governor Kuroda’s comments weakened USD/JPY marginally overnight with the pair testing and rejecting the 137.00 level again.

The outlook for USD/JPY remains uncertain for now. The two central banks are on polar opposite monetary policy paths, a set-up that has helped USD/JPY rally by over 25 big figures in the last year. The ongoing commitment by the BoJ to keep short- and long-term interest rates capped remains a Yen-negative, while the US dollar remains on an upward trajectory as the Fed continues to hike rates and unwind its oversized balance sheet. While all this suggests that USD/JPY will continue to probe higher, the weakness of the Japanese Yen may prompt the US Treasury into action if they think that Japan is manipulating its currency to gain a trade advantage over the US. A new line in the sand for USD/JPY - where the BoJ tries to soft talk USD/JPY lower - may be around 140.00, leaving traders with limited upside.

USD/JPY made another multi-decade high earlier in the session, touching 137.28, a level last seen in September 1998. The short-term chart setup is bullish with a series of lower highs supporting the move higher, while the 20-day simple moving average continues to support the move despite it being tested on a handful of occasions over the last 10-days. On the downside, a break below the recent cluster of trades around 135 would bring 131.35 back into play.

USD/JPY DAILY PRICE CHART – JULY 11, 2022