- USD/JPY reversed an early fall below 129.00, thanks to several supporting factors.
- US bond yields and the US dollar stay strong because of the Fed’s aggressive rate hike.
- JPY’s safe-haven was bolstered by a softer risk tone, which could prevent the pair from rising significantly.
The USD/JPY price has risen a few points from its daily lows and was last seen around 129.30 at the start of the European session.
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Global economic growth remains under threat from aggressive measures taken by major central banks to curb inflation, the war between Russia and Ukraine, and the recent outbreak of COVID-19 in China. As a result, the stock market fell again following this move, benefiting the safe-haven Japanese yen and putting downward pressure on the USD/JPY. However, several factors have helped limit further losses, at least for now.
According to the markets, the Fed is expected to continue its hawkish policy in the coming months to curb accelerated inflation. On Tuesday, Fed Chairman Jerome Powell made aggressive comments about raising rates until prices fell to healthy levels, confirmed by rates. Consequently, US Treasury yields rose, which boosted demand for the US dollar and helped USD/JPY reverse its early decline.
Alternatively, the BOJ has promised to maintain its current ultra-loose policy and pledged non-reserved asset purchases to protect a “near-zero” 10-year yield target. Consequently, diverging monetary policies between the Fed and Bank of Japan confirm that the USD/JPY pair will strengthen shortly. Bulls do not appear to be willing to bet aggressively, suggesting spot prices have already peaked around 131.35.
What’s next to watch?
Market participants are currently looking forward to data on the US housing market – building permits and commissioning of housing – to increase later at the beginning of the North American session. In addition, the yield of US bonds affects the dynamics of prices in US dollars. Therefore, investors continue to focus on general market risk sentiment to take advantage of short-term opportunities associated with the USD/JPY pair.
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USD/JPY price technical analysis: Rangebound
The USD/JPY price remains in a tight range on the 4-hour chart. The pair remains neutral around the 20-period SMA. Any breakout of the range will provide decent trading opportunities. The 50-period SMA is pointing lower while the 100-period SMA remains flat. The scenario suggests a neutral bias. Hence, it is prudent to watch for a valid breakout.
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