Author: Mr Amar – Technical Analyst

The recent sell-off in equities has taken the edge off the 17-month USD/JPY rally as investors look to park their money in the traditionally risk-off Japanese yen. This move comes as the Bank of Japan (BOJ) allowed the yen to depreciate against the US dollar to lows last seen in April 2002. The UST 10-year benchmark is nearly 40-basis point below the May 9 high of 3.20%. The US dollar’s 17-month rally is pausing and is on course to post its first weekly loss since late March. The US dollar has been a one-way deal since mid-2021 when US inflation expectations started to rise sharply. The Fed is now raising rates in 50-basis point increments and is expected to hike further throughout the year and into mid-2023.

The USD/JPY pair is sharply higher after much higher than expected inflation in Japan supported the dollar. The asset is moving steadily towards 128.00 as Japan’s annual inflation numbers could force the BOJ to appear neutral rather than endorsing ultra-loose monetary policy. The Japan Bureau of Statistics has reported Japan’s annual national consumer price index (CPI) at 2.5%, explosively above the market consensus of 1.5% and the previous reading of 1.2%.

The USD/JPY daily chart is showing the pair pulling back to support just below 127.00. The price shows USD/JPY in oversold territory and at its lowest level since January this year. The 20-day simple moving average is now acting as resistance after supporting the upside this year, while the 50-day moving average is just below the 127 level and risk assets should fall sharply should the pair see that level strongly support.