The Japanese Yen is losing ground against the US Dollar because of improved risk appetite and growing interest rate differences. The USD/JPY is trading above 147.00, facing resistance at 148.03. The upcoming meetings of the Federal Reserve and the Bank of Japan will keep interest rate differences in focus. The Fed’s “higher-for-longer” approach contrasts with the BoJ’s cautious stance as inflation in Japan stabilizes. In July, Tokyo’s CPI showed inflation easing to 2.9%, supporting this cautious policy.

Economic Indicators

Market watchers are also looking at US Durable Goods Orders for June, which dropped by 9.3%. This decline was expected after a sharp increase in May, so the market’s reaction was muted. The USD/JPY has bounced back from the 38.2% Fibonacci retracement level at 147.14, targeting the resistance at 148.03. The pair is currently above the 50-day SMA at 145.23, indicating bullish momentum. If it breaks above 148.00, the next target is around 149.38. The US Dollar is the official currency of the United States and is widely traded around the world. Its value is affected by the Federal Reserve’s monetary policy. Quantitative easing can weaken the Dollar, while quantitative tightening tends to strengthen it. We recommend that derivative traders prepare for further gains in this currency pair, as the key factors remain in place. The interest rate difference is crucial; the yield on the US 10-year Treasury note is recently above 4.2%, while Japan’s yield remains below 1.0%. This significant gap makes holding US Dollars more appealing than Yen.

Central Bank Policies

The different approaches of the central banks are likely to reinforce this trend in the upcoming weeks. We expect Chairman Powell to continue the “higher-for-longer” message to tackle persistent US inflation, which was at 3.7% in the latest annual reading from August. In contrast, Governor Ueda is likely to be cautious, waiting for stable wage growth from the spring “Shunto” negotiations before changing negative rates. Given the current technical indicators, buying call options with strike prices above the 148.03 resistance appears to be a sensible strategy. This would allow traders to capitalize on potential gains toward the next major target near 149.38 while also defining their maximum risk. The pair’s consistent performance above its 50-day Simple Moving Average supports this bullish outlook. However, we need to stay alert for the risk of government intervention as the pair approaches the 150.00 level. Historically, Japanese authorities have acted to support their currency near this level, as seen several times in late 2022. The likelihood of direct market action from the Ministry of Finance increases as this significant level approaches. Market positioning data is also important for traders to consider. Recent reports from the Commodity Futures Trading Commission reveal that speculative traders hold a large net-short position on the Yen. While this confirms the current bearish sentiment, a crowded trade can lead to a quick reversal if there’s a sudden shift in policy or market mood. Create your live VT Markets account and start trading now.

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