USD/JPY Price Analysis – Aug 22, 2023

Daily Price Outlook

The USD/JPY currency pair failed to prolong its upward rally and currently trades near 146.37 during the Asian trading hours on Tuesday. The recent foreign investor selling of Japanese Government Bonds (JGBs), could influence the USD/JPY currency pair. The central bank's actions to weaken the yen might push the pair higher.

Furthermore, the concerns about policy adjustments due to changes in Yield Curve Control (YCC) could add uncertainty, impacting the yen's value. As a result, the USD/JPY pair might see fluctuations as market players gauge the central bank's moves and investor sentiment evolves.

Impact of Rising Japanese Bond Yields on USD/JPY Currency Pair

Moreover, the recent improvement in Japan's growth and inflation numbers has led to higher yields on 10-year and 30-year Japanese Government Bonds (JGBs), reaching their highest levels since 2014 at around 0.66% and 1.66% respectively. This increase in bond yields is strengthening the market's belief that the Bank of Japan could be moving away from its very loose monetary policy, especially after adjusting the Yield Curve Control (YCC) policy.

As Japan's bond yields rise, the Yen may gain strength. A stronger Yen could potentially put downward pressure on the USD/JPY currency pair, as the US Dollar might weaken against the resilient Yen.

Factors Influencing USD/JPY Amidst Market Caution and Bond Yield Changes

In the meantime, the positive US data and concerns about the banking sector, along with China's economic recovery efforts falling short, create cautious market sentiment and boost bond yields. The Yen benefits as a safe haven. Also, a labor survey indicating high wage expectations contributes to the risk-off mood and stronger bond yields. These factors combined could weaken the USD/JPY currency pair, as the Yen gains strength amid market uncertainty and firmer bond rates.

Moving on, the upcoming US housing data, Japan's inflation figures, and policymakers' speeches will play a role in USD/JPY trading. Crucially, all eyes are on Fed Chair Jerome Powell's speech at the Jackson Symposium on Friday, which will heavily influence the currency pair's movement.

USD/JPY - Technical analysis

The USD/JPY currency pair experienced an upward surge in the previous trading session, following a breach of the bullish flag's resistance line highlighted in our previous analysis. This propelled the pair towards the awaited positive target at 146.55. It's worth noting that the price's positive momentum has waned as it embarks on the current trading day.

Notably, the stochastic indicator exhibits a negative overlap, thereby bolstering the likelihood of potential downturns in the forthcoming sessions. This outlook anticipates a decline towards the levels of 145.15 and subsequently 144.55, identified as the primary negative waypoints.

Given the prevailing circumstances, a bearish bias is to be anticipated for today's trading session. It's pertinent to acknowledge that a breakthrough above the 146.55 level could trigger a resumption of the primary bullish trend, facilitating further gains with a potential target of 147.00. The projected trading range for the day is foreseen to span between the support level at 145.00 and the resistance level at 146.55.