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The yen regained its ascendancy against the dollar rising 1.7% last week after stalling for most of the month, as Japan installed a new Prime Minister and the Federal Reserve stretched its zero-rate prediction to the end of 2023. Joseph Trevisani, an analyst at FXSTreet, expects the USD/JPY to trade lower, perhaps for longer.

Key quotes

“The combination of lackluster US statistics, a visibly cautious Fed and a quiet Bank of Japan (BoJ), and a mild retreat of risk sentiment due to rising COVID-19 caseloads in Europe and only slowly withdrawing rates in the US has reinforced the overall downtrend in the USD/JPY.  Or to put it another way, there is nothing in the current markets to question or reverse the continuing and gathering move lower in the USD/JPY. The yen retains its safe-haven status even if the current approach is gradual rather than panic-driven. Without a substantial improvement in US statistics, the main economic variable, there is little reason for traders to change this view.”

“At first blush, the USD/JPY reversed at 104.20 on Friday but support there is not strong as it represents a brief one-day low without sustained price action. The March panic lows can be ignored as a guide to future sentiment. Prior support ranges from 100 to 105 but it stems from the second half of 2016 and is weakened by age. The area between 104.00 and 103.00 is largely barren of support. It was only traded for two days at the height of the COVID-19 panic and price points from four years ago have scant relevance.” 

“One caveat to the slide in USD/JPY could come from the new Suga administration in Tokyo. The Abe administration made its economic reputation on its successful devaluation of the yen which it characterized as an irrational impediment to Japan’s export-driven economy.”

“Whether the BoJ has the financial firepower or the will to attempt an arrest of the strengthening yen is open to question. The same is true for the impact of any supplemental budget forthcoming from Tokyo.”