USDJPY Daily Forecast The Japanese Yen is still quite weak versus a stronger US Dollar on resurfaced tariff worries and a cautious stance of domestic policy indications. It is reported that Prime Minister Sanae Takaichi showed some reluctance towards further rate hikes during a meeting with Governor Kazuo Ueda, thus suggesting that the pace of policy normalization might be slower than the market had previously expected. The change of mood has brought back the so-called Takaichi trade by the market, referring to a scenario that features fiscal expansion and accommodative monetary policies, which would generally result in a depreciation of the currency. The fading of the Yens recovery following the February 8 election is almost complete. Market participants have now started evaluating the strength of the push for fiscal stimulus against that of monetary tightening. There is a growing concern that a surge in government spending will put more pressure on the governments finances, without necessarily resulting in a sustainable rise in inflation at the target level. This situation has been one of the factors leading to a weakening of the currency. Inflation remains a critical factor for deciding the Bank of Japans next move, after Tokyo Consumer Price Index data for Friday. Signs of inflation due to supply dislocation seem to be retreating, but continuous Yen weakness alone may result in imported inflation. Given that situation, rate hike expectations will be seen coming sooner. The markets initially designed their timeline for a July move, but now it seems that the possibility of an action in April is being factored in if the weakening of the currency becomes more intense. In this situation, USD/JPY is heading for an upside breakout. The pair, which is trading near two-week highs at about 156.30, is also winding within a symmetrical triangle pattern. The structure indicates that there will be a pause before a directional move. Price is now at the upper limit of the triangle; the chance of volatility getting out of the current low level is increasing. Regardless, momentum indicators are mixed at best. The Relative Strength Index is close to the neutral 50 level, and that means the market pressure is balanced and there is no strong bullish hype. On the other hand, the Moving Average Convergence Divergence is a bit under the zero level, which means that the upside momentum is not entirely confirmed. The MACD histogram is getting smaller, and that shows that the bearish momentum is at the mercy of the bulls, and there is no sign that the buying pressure is going to return soon. Meanwhile, the 50-day Simple Moving Average (SMA) is almost the same as the upper level of the triangle, and thus the two together form a very significant area of confluence. If the price manages to close above this hurdle, then the breakout scenario will be the most probable thing, and the way to 157.60 will be mostly open. This is the level that is the natural upside extension of the triangles measured move, and hence additional buying interest is likely to be attracted there. On the downside, though, the 20-day SMA is still the nearest level providing dynamic support. If the price dips below this average, the short-term structure will be broken, thus exposing the psychological 154.00 level. This round number is technically significant and may serve as a magnet if the selling pressure becomes stronger. After 154.00, further decline may lead to weakness once again to reintroduce broad consolidation towards previous swing lows. Thus, USD/JPY is currently at a technical breakthrough point. The pair is being supported by the weakness of the yen, resulting from the increasing fiscal concerns and cautious rate hike expectations, whereas momentum indicators show a small follow-up. Hence, a confirmed breakout above the 50-day SMA and triangle resistance would be a strong signal for bulls, whereas if the pair fails to keep the gains, it could return to the lower consolidation area.
