When should buy and sell the Japanese Yen?
While the US dollar is weakening and Bond Yields decreasing, USDJPY fell under the 140 level. Last week we had Japan's inflation numbers, which increased doubts about the continuation of BoJ's ultra-easy policy. Since last week, Yen gaining back some of its lost value, as the dollar collapsed. Last week USDJPY fell under its main support at 140 and closed at 138.67 on Friday. After a slight recovery on Monday, on Tuesday, and with USD weakness, the Japanese Yen again moved under 140 to ignore the weakness seen in GDP data.
In addition, the BOJ Summary of Opinions published on Tuesday, November 8, supported the Yen. The report shows that the central bank's policymakers were more hawkish than expected. While policymakers are still a commitment to the bank’s ultra-easy policy for the time being, but still raising inflation led them to talk about earlier exit from the central bank’s dovish policy. As Japanese inflation increased more than the 2% central bank target, BoJ also revised core CPI projections for 2022 to 2.9% from 2.3% previously.
However, BoJ still stuck to its dovish policies, and this difference in interest rates with other major Central Banks, especially with the Fed, puts the Yen in a weaker position against other currencies, driving its price down.
A quick review of last week's data shows that Japan’s Producer Price Index eased to 9.1% in October from 10.2% in September, but still exceeded expectations of 8.8%. Annual bank lending rose to 2.7% in October against 2.3% in September and more than 2.5% of estimates. Annual household spending on raised by 2.3%, much less than the previous month’s 5.1%. Less spending shows that Japanese households curbed spending in the face of higher inflation combined with a weaker economy. However, Japanese Average cash earnings climbed by 2.1% in September, up from 1.7% in August.
This week started with GDP numbers on Tuesday. The world’s third largest economy shrank by 1.2% annually in Q3 2022, as high inflation weighed heavily on business and consumer spending, as mentioned above. These numbers show more weakness in the Japanese economy, which is not a good sign for its currency, at least in the short term.
From the technical point of view, USDJPY moves lower in line with the USD dollar Index. 140 is the key psychological level for this pair and under this level, we can expect deeper levels. On the flip side, a recovery above this level violates the downtrend. Sell positions can start under 138 levels, while buy could be above 142.35.
