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July 18, 2022

Should You Buy USD/JPY Now?

Frank Cabibi

The Bank of Japan is to report an important economic outlook meeting this Wednesday followed by a revised monetary policy statement. The dollar-yen's price has been nested in the 141s for several trading sessions, but the pair is likely set to make a big move soon. Here are some reasons why you should consider buying USD/JPY before then.

Hawkishness vs. Dovishness

The BOJ continues to keep their dovish stance on the economy. Ultra loose monetary policy on the yen will not quell the 2.5% inflation that Japan is currently experiencing. Although the United States is suffering much more, investors still cling to the main safe haven currency regardless.

Smart Money is actually moving away from other risk-off currencies and shifting more towards the USD. This is likely due to the anticipation of a stagnant economy in Japan while there are 'better' options in the risk-off market.

Japan and Switzerland are working towards an eventual rise, but interest rates are still negative. Usually, this is good for lending to other countries as they earn interest by keeping their money in a Swedish or Japanese bank. This year, lending growth has tremendously increased to a high YTD. However, GDP growth continues to fall, and it seems like investors are pricing in another dovish statement Wednesday.

Correlation to Commodities

usd/jpy

The chart above is USOil correlated to the JXY, or the yen index. Since early 2021, the yen has been inversely correlated with the price of oil. This means that as oil rises, yen falls. Because of the increasing demand of oil in recent months, the yen has suffered as a result. So, it could be safe to assume that if USOil starts to rise more, the yen will likely go lower.

Oil is a major resource for Japan, so any kind of decline in this commodity will cause the economy to suffer.

usd/jpy

Up until recently, the yen has been inversely correlated with gold. However, this has shifted to the opposite now; recent weakness in gold is pushing the yen lower.

USD/JPY Setups

usd/jpy

The USD comes down overall today which could end up being an opportunity for investors who are bullish. Price has come down near support around 137.744 with another key level beneath that around 136.985. A price target for the pair looks to be around 139.400 should price bounce from these levels.

CHF/JPY

usd/jpy

The 4H timeframe gives us an idea of where price might look to go this week with a double top resistance at 141.900 and support around 140.350. Below that is a rising trend line that has served as longer term support. A break in resistance could take the pair higher towards the 143.700s.

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