USDJPY

10:18, 06 September

Rallies to One Month High above 107 as BOJ is Under Fire

In the last day or so the USDJPY has rallied and pushed up to its highest level in one month above the 107 level, after spending the last month or so trading in a narrow range right around the 106 level. Prior to this consolidation period the USDJPY fell away sharply from the key 109 level down to its lowest level this year near 105, which has since been lowered two weeks ago to below 104.50. Throughout July the USDJPY had been meeting resistance at the 109 level as it has generally traded in a narrow range between 108 and 109 for some time.
However, in the last four months, the USDJPY has moved considerably lower falling from above 112 down to its 2019 low. Should the USDJPY rally from its present consolidation range, the 109 level remains a key level and is likely to play a role providing resistance, as it continues to loom large.

In the second half of May, it was enjoying some support from around 109 and trading back and forth between 109 and 110.50, before dropping through the support at 109 and moving lower, and then meeting resistance at this level. Throughout May the USDJPY fell lower from another key level of 112 after the currency pair met resistance there for a couple of weeks and was unable to push through. It was able to push up to its highest level this year at 112.40 before being sold off and returning to the support at 109.

To start the year it generally traded within a well-established range between 110 and 112 receiving support and resistance from those levels respectively. Despite it being some distance away, the 112 level remains very significant as it provided support to the currency pair in the last few months of 2018 whilst offering strong resistance in the period since. Throughout this year the USDJPY has done well to rally higher from a significant drop at the start of the year which saw it plummet to below 103, from where it then steadily climbed higher to the 112 level.

With the European Central Bank and the U.S. Federal Reserve expected to increase stimulus this month, speculation is mounting that the Bank of Japan (BOJ) will be forced to follow suit.  The BOJ Governor Haruhiko Kuroda is under growing pressure to return to his aggressive monetary stimulus policies.  To add to the speculation, a new BOJ official in Goushi Kataoka, who is a vocal supporter of aggressive easing, warned that the need for additional stimulus is growing as the damage from the U.S. - China trade war on Japan grows.  “Personally, I feel the need for additional easing is heightening. On the other hand, many central banks are ramping up stimulus, which could affect the global economy,” Kataoka told reporters after meeting business leaders in northern Japan.  “I’d like to take these points into account in deciding what the BOJ needs to do at its September meeting,” he said. “If we were to ease again, we must scrutinize the benefits and the costs of doing so.”