As the USD leg declines, the USD/JPY pair fell to 140.70, according to OCBC’s FX analysts Frances Cheung and Christopher Wong. The market is now facing expectations for a larger Fed cut, leading to a bias to the downside.
Technical Analysis
Despite daily momentum not showing a clear bias at the moment, the RSI has fallen. The formation of a death cross is becoming more ‘entrenched’, indicating a bias to the downside. Key levels to watch include support at 140.70 and 140.30, as well as resistance at 143.50 and 144.40 (21 DMA). Traders will be closely monitoring the 140 level for potential market reactions.
Recent statements from the Bank of Japan (BoJ) have reinforced a normalization bias. BoJ’s Tamura mentioned the need to lift rates to 1% by the end of the outlook period in 2026, while BoJ’s Nakagawa highlighted that real rates are currently at very low levels. Both officials emphasized the BoJ’s commitment to adjusting easing measures based on economic performance.
With potential policy shifts from the Fed and BoJ, coupled with a faster pace of normalization, there could be a quicker narrowing of UST-JGB yield differentials. This trend is expected to support the broader downward movement of USD/JPY.
Analysis and Implications
The decline in USD/JPY, driven by expectations of a larger Fed cut, highlights the impact of central bank policies on currency pairs. Traders should pay close attention to key levels and technical indicators to gauge market sentiment and potential price movements.
Furthermore, the statements from BoJ officials suggest a gradual shift towards normalization, which could influence the broader direction of USD/JPY. As yield differentials between UST and JGB narrow, the pair may continue to face downward pressure.
Overall, investors and traders need to stay informed about central bank actions and policy changes, as they can have significant implications for currency markets. By understanding these dynamics, individuals can make more informed decisions when trading USD/JPY and other currency pairs.