USD/JPY has been the most-interesting forex pair of the past couple years as volatility remains elevated and a pair of 18-big figure trends have unfolded.
More recently, we’ve seen a sharp move down to 152.00 from 159.00 following the latest Japanese election. In it, Senae Takaichi’s LDP party won a super majority in the Lower House, giving her a strong hand to guide policy. That move was somewhat counter-intuitive as she’s pledged more spending at a time when the Japanese fiscal deficit is increasingly problematic. Instead, her pro-growth policies and ability to navigate what’s coming with a stable leadership was rewarded.
There has also been a rush into Japanese equities since the results with the Nikkei rising as much as 6.9% last week. Those flows may have underpinned the rally in the yen and the associated drop in USD/JPY.
There is also the persistent talk and fear of intervention. It’s clear that Japanese officials don’t want to see the pair above 160.00 and grow increasingly alarmed as prices flirted with that level in January.
The chart is an interesting one as the long trend from Liberation Day to January ran from 140.00 to 159.45. The rate check rumors in January led to a sharp gap lower on a Friday that continued briefly the following week before a sharp bounce to 157.50. The latest leg lower following the election now threatens a double bottom at 152.00.
I think the pair is vulnerable to the downside but there’s no need to chase it until it cracks 152.00 as the momentum from there could easily take it through the figure, particularly if US economic data takes a more-dovish shift.
Zooming out to the weekly chart, it’s a daunting picture as it looks like the pair is consolidating in preparation for a test/break of the 160.00 level. If so, there are 20 big figures of upside there and a whole lot of jawboning (if not intervention) from the Ministry of Finance.
This is has been a very interesting pair for a few years and I don’t see that changing any time soon.
This article was written by Adam Button at investinglive.com.