JAPAN’S RATE GAP WIDEN WITH REST OF THE WORLD, JAPANESE YEN WEAKEN TO 1998 LOW
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Author: Sir Amar – Technical Analyst

The yen hit a fresh 24-year low against the dollar on Wednesday, after suffering another overnight fall as US bond yields continued to rise, in stark contrast to Japan’s stubbornly low interest rates. Movements in major currency pairs were muted, but central banks around the world emphasized the comparison of policies between Japan and the rest of the world and continued to emphasize the need for higher interest rates. The yen was last seen at 136.4 per dollar after hitting 136.71 in early trade, its lowest since October 1998. Analysts don’t see an immediate end to a sell-off that has taken the yen down 18% year-to-date from 115.08 weakened at the end of 2021.

Consequently, the yen gains against a weaker US dollar and a strengthening euro. The single unit rose on Tuesday, bolstered by the European Central Bank’s plans to raise interest rates to curb inflation. The DXY dollar index, which tracks the dollar against six major pairs including the euro and yen, fell 0.2% to 104.23 ahead of Federal Reserve Chair Jerome Powell’s testimony before Congress, which begins on Wednesday. Investors will look to Fed Chair ‘s statement for more clues on future rate hikes and his latest views on the economy.

USD/JPY surged above the 135.16-135.57 resistance zone set by the 2002 peak. This led to levels last seen in 1998 and exposed the 78 Fibonacci extension from 0.6% to 139.68. Confirmation of the breakout is missing at the moment as negative RSI divergence persists. The latter is a sign of fading bullish momentum that could precede a downside reversal. In such a case, keep a close eye on the March rising trend line, which could restore a bullish stance.