As I have mentioned in my previous reviews, the Japanese officials are actively discussing the current state of financial markets and the Japanese economy in particular. According to Bank of Japan Governor Haruhiko Kuroda, a sustained rise in prices is linked to an increase in wages. In other words, inflation is unlikely to rise unless salaries increase. Japan's Prime Minister also noted a balanced approach of the Japanese central bank aimed at easing monetary and fiscal policies. The Japanese Prime Minister expects that the Bank of Japan will promptly respond to inflationary challenges using all the necessary tools. So, the dovish stance of the BoJ remains unchanged. It is hard to imagine what changes should take place for the Bank of Japan to revise its policy. In the meantime, markets fear that the US Federal Reserve will start to wind down its aggressive monetary policy, and there is a reason for this. Last week, a number of important reports revealed negative dynamics in some of the key macroeconomic indicators in the US. In this light, the jobs data expected on Friday will be quite interesting to watch. If the state of the labor market disappoints traders just as the GDP data did, the US dollar will face pressure across the board. In my opinion, the greenback has already started to weaken.
Weekly chart
As we can clearly see on the weekly time frame, the pair changed its direction and started to decline as soon as the Bearish Engulfing candlestick pattern appeared on the chart. Three consecutive bearish candlesticks indicate that this movement is unlikely to be a corrective pullback. At the same time, the dollar/yen bulls have not given up yet and continue to fight. In the week of May 23-27, major bullish activity was observed near the key technical level of 127.00. This is confirmed by a rather long lower shadow of the last candlestick and its closing price of 127.13. I believe that this week may be a turning point for the US dollar in general and USD/JPY in particular as the US employment data expected on Friday will determine the further direction of the pair. A true breakout of 127.00 will pave the way towards a very important area of 125.00-124.50. The resumption of the bullish scenario will be confirmed only by a true breakout of the resistance at 131.32. However, this scenario looks very unlikely on the weekly chart. At the same time, you should keep in mind that the market is unpredictable, and anything can happen there.
Daily chart
On the daily chart, there is a fierce battle for the level of 127.00. One can simply look at the recent candlesticks to see this. The current resistance is represented by the red Tenkan line of the Ichimoku Indicator located at 128.08. The current support is found in the area of 127.00-126.55 where the blue 50-day simple moving average is located. In my opinion, the best strategy for now is to sell the pair from the levels of 127.40, 127.70, and 128.00. On the other hand, buy trades can also be a good option as there has not been any trend reversal yet. You can try to go long on the pair in case another candlestick with a long lower shadow and a closing price above 127.00 appears on this chart. In general, the technical picture for USD/JPY looks mixed which is confirmed by the ongoing consolidation.
Good luck!
