The Japanese Yen (JPY) continued its downward trend against the US Dollar (USD) for the fourth consecutive day, reaching a three-week low during the early European session on Friday. The impact of a powerful earthquake on New Year’s Day has complicated the Bank of Japan‘s (BoJ) plans to abolish negative interest rates later this month, contributing to the weakening of the domestic currency.
Meanwhile, the likelihood of more restrained policy easing by the Federal Reserve (Fed) supports elevated US Treasury bond yields, assisting the USD to maintain its position below a near three-week high reached on Wednesday. As a result, the USD/JPY pair has advanced beyond the psychological level of 145.00 in the last hour.
While speculation regarding a January policy adjustment diminishes, investors maintain a belief that the BoJ will transition away from ultra-loose monetary policy settings later in 2024, potentially in April after the annual wage negotiations in March. This, coupled with a generally cautious sentiment in the equity markets, may help curb further losses for the safe-haven JPY.
Traders are likely to adopt a wait-and-see approach ahead of the official monthly jobs data from the United States (US), particularly the Nonfarm Payrolls (NFP) report, which could offer insights into the timing of potential Fed interest rate cuts. This information will influence the dynamics of the USD and provide fresh direction for the USD/JPY pair as the week concludes.
Technical Analysis: USD/JPY continues to climb beyond 145.00, with bulls in control near multi-week highs. The pair aims to build on momentum beyond the 38.2% Fibonacci retracement level of the November-December downturn. Positive momentum on the daily chart suggests that further buying beyond the psychological level of 145.00 could pave the way for additional gains. The next targets include the 145.45-145.50 intermediate hurdle, followed by the 146.00 round figure or the 50% Fibonacci retracement level.
On the downside, significant support is anticipated ahead of the 144.00 mark. A convincing break below this level might trigger technical selling, exposing the 200-day Simple Moving Average (SMA) support, currently around the 143.25-143.20 region. This critical support level, if breached decisively, could indicate that the recent recovery from a multi-month low has concluded, potentially shifting the near-term bias back in favor of bearish traders.