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USD/JPY hits 24-year high, with Fed-BoJ divergence bringing expectations of further upside


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USDJPY breaks through the high set by recent BoJ intervention, with multi-year highs signalling expectations of further upside

bg_yen_JPY_Japan_currency.jpgSource: Bloomberg
 Joshua Mahony | Senior Market Analyst, London | Publication date: Wednesday 12 October 2022 

US jobs data helps lift Fed rate expectations

Friday saw the latest US jobs report, with the declining unemployment rate and healthy payrolls figure bringing about a fresh confidence in the outlook for rates at the Federal Reserve. Recent intervention at the Bank of England had raised questions over whether the Fed would similarly intervene through easing in the event that the economy started to show signs of distress. However, it seems the jobs market is not about to provide such a signal if last week’s jobs data is anything to go by. The latest JOLTS job openings data seen below had provided us with a warning sign over the potential for an uplift in unemployment. However, that has fortunately failed to come to fruition.

JOLTS121022.PNG

The gains seen over the course of the year have largely driven by the widening differential in interest rates, with the lack of movement from the Bank of Japan meaning that traders head for the dollar over the Yen in times of hardship. The chart below highlights just how that rate differential has grown, with the gap between BoJ and Fed rates back to levels not seen since 2007.

USJPRATES121022.PNG

Interestingly, we have seen the differential between US and Japanese inflation tighten of late, with the downward drift in US prices coming as they gradually rise in Japan. However, with the Fed expected to continue raising rates, this is unlikely to drag USDJPY down yet.

CPItoUSDJPY121022.PNG

USDJPY has finally managed to rise through the 145.90 resistance level, overcoming the peak seen prior to the BoJ’s FX intervention back on 22 September. While those efforts initially strengthened the Yen, we have seen the trend kick back into play here. It is worthwhile noting that the BoJ may not be done yet, and thus volatility can come in the form of further intervention. Up ahead we have a major long-term resistance level at 147.63, which represents the high from way back in 1998. Should price break through that level we would be looking at a 32-year high for the pair. While this major resistance level does lie ahead, the ongoing uptrend seen throughout this year brings confidence of further near-term upside. A break below the 143.52 swing low would be required to bring expectations of a wider pullback.

USDJPY-Daily-2022_10_12-15h50.pngSource: ProRealTime
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