Naoto Arase, Head of the Fintech Department at PPLS.
The US dollar-Japanese yen (USD/JPY) currency pair dropped rapidly from a yearly high of 151.91 on November 13 to a four and a half month low of 140.97 on December 14, the lowest since July 31.
Although there were brief moments of recovery, with the exchange rate reaching 144.96 due to dovish expectations regarding the Bank of Japan’s (BoJ) monetary policy meeting, it again began to drop towards the end of the week, reaching a low of 141.87 and showing lacklustre movement.
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The daily candlestick chart fell below a number of major technical points including the 21-day moving average, 50-day moving average, 90-day moving average, 200-day moving average, Bollinger mid-band, Ichimoku conversion line, baseline and cloud lower limit.
With strong emerging sell signals such as “Ichimoku three-entity reversal”, “dead cross between the 21-day moving average and the 90-day moving average” and “downtrend based on Dow Theory”, the technical outlook could be seen as “extremely weak”.
Furthermore, from a fundamental perspective, there are an increasing number of factors that suggest a decline in the USD/JPY exchange rate.
These include increasing speculation regarding an early interest rate cut by the Federal Reserve, while there are also rising concerns over a reversal of yen carry trades due to the narrowing of the interest rate differential between Japan and the US.
Against this backdrop, attention was focused on Bank of Japan (BoJ) Governor Kazuo Ueda’s speech on December 25 and the “main opinions” to be released at the central bank’s monetary policy meeting on December 27 to assess the aforementioned factors.
Should Ueda make hawkish remarks – comments suggesting a timeframe for the removal of the negative interest rate – strong downward pressure would be placed on the USD/JPY exchange rate.
And if the “main opinions” indicate discussions towards an exit strategy, there is a risk that speculation regarding the removal of the BoJ’s negative interest rate policy could lead to a rise in yen interest rates and a resumption of yen buying.
Therefore, the expected main scenario is one of dollar selling and yen buying – although there is also a risk of a flash-like rapid decline in the USD/JPY exchange rate – due to the expected decrease in market participants during the New Year period.
The predicted USD/JPY range for this week is between 140.50 and 143.00.
