HomeNewsUSD/JPY Rally Targets 148 Yen to the Dollar
USD/JPY Rally Targets 148 Yen to the Dollar

USD/JPY Rally Targets 148 Yen to the Dollar

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The rally in USD/JPY is accelerating ahead of Thursday’s Gross Domestic Product data from Japan as traders position for further yen weakness.

If Tuesday’s Japanese household spending data is a sign of things to come, Wednesday’s GDP could be a shocker. Both month-on-month and year-on-year Household Spending came in way below forecasts. Subsequently, the yen came under heavy selling pressure in anticipation that Thursday’s data could also dissapoint.

Analysts forecast the Japanese GDP for Q2 2022 will show the economy expanded by 0.7% in the three months, up from 0.5% in Q1. However, following the Household spending data, the market seems less convinced.

The yen is down 2.23% against the dollar this week. As I write, the pair is trading at 143.20, a level last seen in 1998. Remarkably, of the 25% the yen has fallen against the dollar this year, almost half of that decline has come in the last five weeks.

The main reason the dollar is stronger against yean is the FOMC’s aggressive tightening measures. The fed raised rates 75 basis-points into the 2.25-2.50% range at the last policy meeting, with a similar sized move expected at the next meet. Furthermore, Fed speakers have warned that rates will likely move higher after that. As such, the interest rate differential between the US and Japan is widening at an alarming rate.

Furthermore, last week, BoJ Governor Kuroda told reporters that he has no plans to tighten monetary policy. As a result, the USD/JPY is accelerating to the upside.

US Dollar to Japanese Yen Forecast

The weekly price chart shows USD/JPY has taken out the former 2022 high at 139.38. Since closing above the key resistance level last week, the buying is gaining pace. Subsequently, we could soon see USD/JPY testing the August 1998 highs around 147.60. Above that, the next level to watch is the February 1990 high at 160.00. Considering that preceded the Japanese Banking Crisis by a few months, market participants will be watching closely.

However, the steep ascent has lifted the rate into overbought territory. The relative Strength Index (RSI) reading 83.10 is incredibly high. Technical traders typically consider a reading above 70.00 a sign that a rally is unsustainable. For that reason, the rate may retreat in the coming weeks.

With that in mind, the first technical support level is the former resistance at 139.38. The medium-term outlook is bullish above that level, turning bearish on a weekly close below.

Check out the cheapest way to send money to Japan.

USD/JPY Price Chart

Elliot Laybourne
Elliott is a former investment banker with a 20 year career in the city of London. During this time he held senior roles at ABN Amro, Societe Generale, Marex Financial and Natixis bank, specialising in commodity derivatives and options market-making. During this time, Elliott’s client list included Goldman Sachs, JP Morgan, Credit Suisse, Schroders Asset Management, and the Pennsylvania State Public School Employees Retirement System, amongst others. Today, he splits his time between Thailand and Dubai, from where he provides trading consultancy and business development services for family office and brokerage clientele.