Yen Jumps to Session High as BOJ Kept Current Easing

The yen bounces back strongly for a third straight day to partly erase the weekly loss against the U.S. dollar. The intraday price of USD.JPY slumps 0.35 percent or 0.387 points to ￥111.785 yen as of 12:20 p.m. in Sydney largely for the reason that the U.S. dollar suffers a massive drop in these days. The dollar remains its defensive steps compared with nine of its G-10 peers as their central banks are considering to start following the Federal Reserve in shifting higher interest rates and then the financial market promptly recalibrates position. The USD’s tumble was mainly driven by a hawkish voice of both the ECB’s President Mario Draghi and BOE’s Governor Mark Carney. Just a week after saying that near-zero interest rates were appropriate, Carney suggested the time is nearing for an increase on Wednesday’s speech. Meanwhile, his Euro-zone counterpart Draghi noted that euro-zone’s economy is on the way to recovery after a decade of easy money policy and his speech had been interpreted as signalling an imminent change in current ultra-loose monetary policy. However, the Fed’s chair Janet Yellen showed a dovish voice though her policy tightening is still on track. “The market is very sensitive to the idea that a number of central banks are appropriately and belatedly reassessing the need for emergency policy accommodation,” said Alan Ruskin, co-head of foreign exchange research at Deutsche Bank AG. Unlike his counterparts who are set to keep the foot on the pedal of monetary stimulus, the Bank of Japan governor Haruhiko Kuroda highlighted Japanese economy continues to strengthen, but inflation is still weak, which is far away from its 2 percent target and wages and investment remain subdued. The BOJ has pushed central-bank activism further than its peer, with having an active control of the yield curve by buying massive bond for more than four years. Recent data of Japan shows a positive outlook for its economic growth, with both changes in Overall Household Spending and Industrial Production last month were beating their forecasts and previous statistics, at -0.1 percent and 6.8 percent respectively. However, National CPI in May remained unchanged compared with previous at 0.4 percent, and unemployment rate even rose to 3.1 percent. Technically for the long-term period, the USD/JPY remains consolidated in a daily descending price channel after touching a key resistance found at the upper channel line with the Relative Strength Index (RSI) sharply decreasing. In the event of successful breakout of the resistance, the U.S. dollar tends to rise further following the upward channel depicted in red according to chart 1.

Chart 1: USDJPY Daily

If we try to predict the future movement of the USD/JPY through an indicator of Fibonacci retracement, 112.239 (61.8% retracement) is seen as a key resistance which impeded its further increase. If it breaks higher to 61.8% retracement, it more likely moves towards 114.364 (100% retracement). Alternatively if it reverses lower, 111.578 (50% retracement) can be seen as a support level for the price.

Chart 2: USDJPY Daily – Fibonacci