USD/JPY Looking at More Gains After the Quick Dip to 145.50
USD/JPY has been bullish the whole year, with the occasional dip lower, which has been short-lived as buyers keep buying pullbacks lower. After the dive in Q4 of last year, the USD/JPY currency pair is showing signs of strength as it attempts to continue its V-shaped recovery, pushing past the immediate resistance level at 146.50 early last week. Later in the week, we saw a dive to 144.50, where the price found support at the previous resistance zone but reversed higher again on Friday.
This resilience is primarily attributed to a stronger US Dollar, despite the Federal Reserve (FED) implementing higher interest rates. There is growing optimism that the FED might refrain from further interest rate hikes for the rest of the year, as labor market conditions appear to be cooling down.
This sentiment which helped risk assets and sent the USD down was fueled by the fact that the Unemployment Rate increased by 3 points to 3.8% as the report released last week showed, while wage growth slowed in August. But, the positive sentiment only lasted a few hours and we saw a reversal in the US session on Friday, as we have seen during most of August, so this pair moved above 146.50 eventually yesterday.
For the past three weeks, USD/JPY has been trading within a relatively tight range, fluctuating between 144.58 and 146.50, with the exception of the climb above 147 last week. This pattern indicates a contraction in volatility, suggesting that the currency pair is gearing up for a significant move following a breakout from this consolidation phase. Traders and investors are eagerly awaiting this decisive action in the market. with many expecting a break to the upside, as the Bank of Japan remains on hold.
The likelihood of the Ministry of Finance ordering a foreign exchange (FX) intervention by the Bank of Japan (BOJ) appears to be quite low, given the relatively weak Japanese Yen (JPY) and the current range of USD/JPY. Finance Minister Shunichi Suzuki emphasized this point on Friday, stating that currency exchange rates should be determined by market forces. He added that although abrupt currency fluctuations are undesirable, FX rates should align with economic fundamentals. So, buyers should remain in charge in this pair and we are looking for a breakout of the top of the range this week.
USD/JPY Live Chart
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