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  • It appears investors have reinstated the yen as a safe-haven currency amid global recession fears.
  • The markets are speculating on a possible hawkish Bank of Japan, which might boost the yen against the dollar.
  • USD/JPY positively correlates with US Treasury yields which have dropped below 2.8%.

Today’s USD/JPY outlook is bearish amid global recession concerns and speculation over a possible policy shift for the Bank of Japan. According to Commodity Futures Trading Commission reports, net-short non-commercial speculative positions for the yen have fallen to their lowest this year.

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“We see reasons to assume the rally in US Treasuries can prove sticky,” Citi strategists Michael Chang and Jabaz Mathai wrote in a note Friday. “If this is the case, there would be a significant downside to dollar-yen.”

Manufacturing has slowed in the US and Asia, forcing investors to turn to traditional safe havens like the yen. The latest market gossip is a possible shift to a hawkish stand by the Bank of Japan. If this were to happen, we might see a collapse in USD/JPY.

The pair is also sensitive to Treasury yield fluctuations, and a drop in Treasury yields could be a bearish signal for USD/JPY. Benchmark Treasury yields fell below 2.80% on Friday, down from the 3.5% value seen in mid-June. If this is a cloud before rain scenario, we might see the pair collapsing.

USD/JPY key events today

There are no significant news releases from the US today as the country celebrates Independence Day. Investors expect a services PMI report and later the Japan 10-year JGB Auction rate. Yield fluctuations in Japan are an indicator of the government’s debt situation.

USD/JPY technical outlook: Bears trying to stay below 135.62

USD/JPY outlook

The 4-hour chart shows the price heading back to the recently broken 30-SMA for a retest. Bears have control, as seen in how the RSI trades below the 50 level. At the same time, the price has yet to make lower lows and lower highs.

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To confirm the bearish trend, the price would have to break below 134.256, the June 23 low. If the price broke below this level, the next hurdle would be at the June 9 lows at 133.394. However, if the price continues to go higher, we could see a break above the recent resistance at 135.622.

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