The dollar-yen pair continues to trade in a wide price range, the scope of which is limited to the marks of 145.50 and 149.00, which, in turn, correspond to the lower and upper lines of the Bollinger Bands indicator on the daily chart. However, the bearish sentiment prevails for the pair this week, as a result of which the price range has narrowed somewhat and now its "ceiling" is the 148.00 mark (the average line of Bollinger Bands coinciding with the Kijun-sen line on the same timeframe).
If we look at the weekly USD/JPY chart, we will see that the pair has been trading in a wide-range flat since mid-October, that is, since the Japanese authorities conducted the second currency intervention this year. The Ministry of Finance of Japan had to extinguish the fire, as the yen had already updated a 32-year low at that time, being paired with the greenback in the area of the 151st figure.
It is worth noting that this step brought the buyers of the pair to their senses, whereas, after the September intervention, the price almost immediately returned to its previous positions. To date, the yen still observes, relatively speaking, the bounds of decency, not approaching the 150th mark. How long this state of affairs will last is an open question. However, over the past three weeks, USD/JPY traders have been hesitant to cross the 150.00 mark, preferring to trade in the safe price area of 145.50-149.00.
Many currency strategists have come to similar conclusions. In particular, according to TD Securities economists, the risk of repeated intervention "will increase significantly if the level of 150 is exceeded." UOB Group analysts also designate the 149.60 mark as the ceiling of the price range, while emphasizing the significance of the 150th figure.
Taking into account this disposition, we can also talk about the tactics of subsequent actions. Today, the USD/JPY pair is slowly sliding to the lower limit of the above-mentioned price echelon, taking advantage of the temporary weakness of the US currency. Bears are gradually getting closer to the 145 price level.
In my opinion, this is the best option for opening long positions on a pair (but if we consider at least the medium-term trading period). The fact is that the divergence of the positions of the Federal Reserve (which is ready to raise the interest rate by at least 50 points once again) and the Bank of Japan (which continues to implement an ultra-soft monetary policy) will inevitably push the pair up.
The current decline in the USD/JPY price is primarily due to the weakening of the greenback, which, in turn, reacted to contradictory non-dramas (a slight increase in unemployment, and a slowdown in the growth rate of average wages). Traders are also nervous about the background of the midterm elections to the US Congress, following which the lower house is likely to be controlled by Republicans, and the upper one will remain with the Democrats (although the issue is moot here).
Political factors, as a rule, have a short-term impact on the pair, especially since the new composition of the Congress will begin work only in January 2023. While macroeconomic fundamentals may strengthen the position of the US currency this week. The day after tomorrow, November 10, key data on inflation growth will be published in the United States. According to preliminary forecasts, the consumer price index will slow down its growth but will remain at an unacceptably high level (total CPI 8.0% YoY, core – 6.5% y/y). If the indicators exceed the forecast levels, the dollar will significantly strengthen its position. Contradictory non-farms will remain in the shadows, while the probability of a 75-point rate hike in December will increase again.
The Bank of Japan, in turn, continues to implement an accommodative policy. At the same time, inflation in the country has been exceeding the target level of the Central Bank for several months. However, Central Bank Governor Haruhiko Kuroda continues to persistently ignore this fact. He has repeatedly stated that the regulator needs to create conditions for "sustained inflation" in the country's economy, while the increase in the growth rate of the consumer price index this year is "due to isolated factors, such as the rise in energy prices." Kuroda has also repeatedly stated that the Japanese regulator will not follow other central banks of the leading countries of the world and will not normalize monetary policy in the foreseeable future. According to most analysts, the Bank of Japan will keep rates at the current level and continue large-scale stimulus until the end of this year and at least until the spring of 2023 (Kuroda leaves his post in April).
Thus, if US inflation does not disappoint dollar bulls this week, the USD/JPY pair is likely to push off from the boundaries of the 145th figure and head up to the upper limit of the range of 145.50-149.00. Moreover, in this case, the upward dynamics will occur in the "safe zone," without regard to the Japanese Ministry of Finance. Overcoming the 149th figure in the foreseeable future looks unlikely. Following the results of the currency intervention in October, the Japanese authorities made it clear unequivocally: if traders overcome certain "red lines," the consequences will not be long in coming. This factor will deter USD/JPY buyers, at least for a certain period.
