Naoto Arase, Head of the Fintech Department at PPLS.
The dollar-yen USD/JPY currency pair rebounded from the low of 147.38 recorded on October 3, before rising to 149.88 temporarily on October 12.
It is still in the mid-149 yen range, and is in a position to aim for a year-to-date high of 150.18.
The daily candlestick is above all the major technical points – the 21-day, 50-day, 90-day and 200-day lines, Bollinger mid-band, Ichimoku conversion line, base line and cloud upper limit – with the “Ichimoku three-role reversal”, “bullish perfect order” and “Dow theory uptrend” also suggesting a continuation of strong buy signals.
From this it can be judged from a technical point of view that the market is strong.
And from a fundamental view-point, there are a number of factors suggesting a rise in the dollar-yen exchange rate:
(1) The expectation of long-term monetary tightening by the US Federal Reserve, with recent US employment statistics, producer price index (PPI), consumer price index (CPI) and the Michigan University expected inflation rate all exceeding market expectations;
(2) The expectation of long-term monetary easing by the Bank of Japan;
(3) The difference in the direction of monetary policy between Japan and the US based on 1 and 2 – the expectation of a continuation of the yen carry trade focusing on the widening of the Japan-US interest rate differential.
While there is a sense of caution surrounding intervention by the government and the Bank of Japan, it is unlikely they will intervene in the foreign exchange market, particularly in situations where the financial market is shaken by geopolitical risk.
As Sanjaya Panth, deputy director of the Asia and Pacific Department at the International Monetary Fund (IMF), said on October 14: “The recent yen depreciation is in line with fundamentals and does not meet the requirements for intervention.”
In addition, geopolitical risk surrounding the current Middle East situation is a factor also triggering both risk aversion yen buying and emergency dollar buying, and is expected to have a neutral effect on the dollar-yen pair.
Based on the aforementioned, it can be expected that the dollar buying-yen selling trend focusing on the Japan-US interest rate differential will continue as the main scenario, with caution necessary regarding volatility expansion in the US time zone this week.
This week’s expected resistance level is 150.50.
