Yen, USD/JPY Analysis

  • Japanese finance minister Suzuki warns against currency volatility, tolerates depreciation for now
  • Yen sell-off could slow in the short-term as RSI breaches extreme level
  • IG Client Sentiment heavily one-sided: 76% of USD/JPY traders are short

Japanese Yen Depreciation Gains Momentum

The Yen has continued its impressive decline against a number of G7 currencies which may be set to continue. The Yen was naturally on the back foot due to a massively supportive Bank of Japan (BoJ) continuing to provide stimulus and ruling out any chance of a rate hike in the near future.

Such a stance contrasts what we are witnessing from other major central banks like the Fed and the Bank of England (BoE) that have already begun the rate hiking cycle with many more priced in before the end of this year. Even the notoriously dovish European Central Bank (ECB) has markets anticipating 50 basis points in hiking before the end of 2022 as inflation runs rampant. In contrast, Japanese inflation (0.9%) is nowhere near that of the US and UK, meaning there is absolutely no need to raise rates anytime soon.

The charts below show how poorly the yen has fared across the board during March.

Japanese Yen vs GBP, CAD, USD and AUD (Daily Charts)

Japanese Yen vs major currencies

Source: TradingView, prepared by Richard Snow

Finance Minister Suzuki Raises Concern with Currency Moves

The Japanese finance minister Shunichi Suzuki expressed concern around the recent market moves which were “quite large” and re-affirmed that the government will make use of the covid reserve fund when necessary, in the next fiscal year (From 1 April).

In addition, Suzuki admits that the yen depreciation is both positive and negative for the economy, but currency stability is crucial. Japan imports around 80% of its oil consumption, which continues to weigh on the yen in light of the elevated oil prices, while the weaker yen makes Japanese exports more attractive.

USD/JPY Key Technical Considerations

It therefore appears that the current rate of yen depreciation is tolerable, supporting the current bearish trend. Looking at the USD/JPY daily chart, further upside resistance appears around 121.85 followed by 124.15.

However, the pair is currently trading well into overbought territory on the RSI with a reading of 82. A subsequent drop outside of overbought territory could provide the first sign of a reprieve, particularly if the pair is to pullback towards the psychological level of 120 before sizing up a potential bullish continuation.

USD/JPY Daily Chart

USD/JPY price chart

Source: TradingView, prepared by Richard Snow

Retail Traders Double Down on Bearish Reversal

Throughout March, IG retail traders have drastically ramped up shorts in anticipation of a USD/JPY bearish reversal. This is despite the unrelenting move higher in USD/JPY. Positioning is heavily one-sided with more than 3 trades short for every long trade.

usd/jpy client sentiment

  • USD/JPY: Retail trader data shows 23.95% of traders are net-long (76% short) with the ratio of traders short to long at 3.17 to 1.
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD/JPY prices may continue to rise.
  • Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a mixed USD/JPY trading bias.

— Written by Richard Snow for

Contact and follow Richard on Twitter: @RichardSnowFX

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