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Forex » USD/JPY Hits 24-Year High

USD/JPY at 24-year Forex high: what’s ahead?

The apparent divergence in central bank policy between the Fed and the Bank of Japan is a simple story for forex traders.

US traders have returned to their jobs after a long Labor Day weekend that unofficially marked the end of summer, and they are indeed back to a busy week. As my colleague Joe Perry pointed out in his report the week ahead, there will be a series of long-awaited central bank meetings this week, including the RBA (which rose 50 basis points overnight as expected), the Bank of Canada and the European Central Bank.

However, it wasn’t the currencies affected by these central bank meetings that had the biggest impact on the FX market this week; instead, traders are focusing on what has been the biggest Forex trend in 2022 so far, the relentless strength of the USD/JPY.

From a fundamental perspective, the glaring divergence in central bank policy between the Fed and the BOJ is easy for traders to understand: the BOJ is firmly committed to policy flexibility through its yield curve control (YCC) program as the Fed continues to aggressively raise interest rates in an attempt to contain inflation. Until the BOJ starts worrying about inflation or the Fed sees that the US economy is slow enough to put a hold on rate hikes, this fundamental momentum should continue to push the dollar/yen higher.

With the 2-year Treasury yield set to close above 3.50% today, the highest level in 15 years, there is still little sign of the fundamental momentum slowing down.

USD/JPY technical analysis

Looking at the daily chart, USD/JPY is showing a sharp break above summer highs just below 140.00 after consolidating around its 50-day EMA in the first half of August. There are now several previous resistance levels up to the 1998 highs starting around 146.00.

USD/JPY daily chart

Source: Tradingview, Stone X

While it should be noted that the 14-day RSI is technically in “overbought” territory above 70, it has remained in a bullish range (>30) throughout the year and could easily move even higher before rebounding. . At this point, only a return below the previous resistance-turned-support around 139.50 will remove the near-term bullish technical bias.

Matt Weller, CFA, CMT, FOREX.com » Official site

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Disclaimer: The information and opinions contained in this report are for general information only and do not constitute an offer or solicitation to buy or sell any currency contracts or CFDs. Although the information contained herein has been obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness and accepts no liability for any direct, indirect or consequential damages that may result from anyone relying to such information.

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