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USDJPY Heads Higher After Hitting Historic Levels

USDJPY exchange rate rose by 0.16 per cent on Wednesday to hit 155.08 at 16.40 GMT. The pair maintains an uptrend going back two weeks, during which the dollar has gained 1.22 per cent over the yen. The US dollar’s upside is limited by soft US macroeconomic data released on Tuesday and Wednesday, but the upside is likely to continue, nonetheless.

The yen is under immense pressure after a long period of decline against the US dollar. This has triggered talk of a potential policy intervention by the Bank of Japan this Friday. However, only 10% of analysts expect an interest rate hike of 10 basis points. With the USDJPY having registered a historic high of 155.17 in Wednesday’s intraday trading, the yen seems to be on a freefall, with no psychological resistance to refer to.

This week’s meeting by BoJ policymakers is highly significant, considering that is the first one since the central bank exited 17 years of negative interest rates. With the policy change having failed to prevent the yen from sliding to historic lows, there’s room for a possible surprise announcement by the bank. There’s growing concern that the current USDJPY exchange rate is out of touch with Japan’s economic fundamentals, and could worsen the country’s economic struggles.

Meanwhile, the US dollar got tailwinds from March’s New Home Sales data, which came in at 693,000, outperforming February’s 637,000 and exceeding the forecast 668,000.  Furthermore, it was the first time in 2024 that the figure had risen. However, the dollar’s upside will be limited by the decline in manufacturing activities and services, according to preliminary data released on Tuesday.  The S&P Global US Manufacturing PMI dropped significantly from 51.9 to 49.9, coming below the forecast 52.0. In addition, the S&P Global Services PMI read 50.9, missing the forecast figure of 52.0 and declining from February’s 51.7.  

Looking ahead, the market will reposition itself for not only the BoJ decision, but also the US GDP announcement for Q1 of 2024. In addition, more volatility could come from the readings of US Initial Jobless Claims and Tokyo Core CPI figures.

Technical analysis

USDJPY is on a strong upward momentum, which has entered the overbought zone. The buyers need to sustain the price above 155.13 to stay in control. That will favour them to go past the resistance at 155.32 and potentially test 155.42 in extension. On the other hand, a move below 153.13 will favour the sellers to be in control, with their immediate target being at 154.94. An extension of the control will likely break the support, which will invalidate the upside view and potentially build momentum to test 154.79.