- The US dollar has rallied a bit against the Japanese yen during the trading session on Friday, but it continues to see the 145 yen level offer a little bit of resistance.
- If we can break above there and subsequently the 50 day EMA that sits there, then the 146 yen level gets targeted, followed by the 200 day EMA sitting just above the 148 yen level.
- A short-term pullback from here could open up a move down to the 143 yen level, possibly even as low as 142 yen.
But I think what I'm starting to see in this pair, as well as against the Swiss franc, that the US dollar is trying to bottom. Now, why is that important? That's important because both the yen and the franc are funding currencies.
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So, I'm starting to see a theme play out and we'll just have to wait and see if it actually takes off. After all, the Bank of Japan has absolutely no chance whatsoever of tightening monetary policy of any substance. And with that, I think you have to assume that even if the Federal Reserve does in fact cut rates in September, the interest rate is still wide enough to drive a truck through. And that means that you will still get paid to hang on to this pair.
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Now, granted, the swap is actually determined by what's going on in the bond markets, but we're nowhere near Japanese levels in the United States. Furthermore, the Bank of Japan has a serious problem. And that problem is we've had several days over the last couple of weeks where people just did not bid on Japanese debt. That really could cause a major problem. And if the Bank of Japan were to tighten monetary policy, they could sink the Japanese bank system. So, I think they're a bit stuck. And I also believe that the Forex market is starting to sniff that out.
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