The yen was last this strong in mid-March this year. News from central banks contributed to the decline in USD/JPY.
Yesterday, the Bank of Japan raised interest rates to levels not seen in the past 15 years. Conversely, the Fed kept rates unchanged as expected but “opened the door” for a possible cut in September, according to Reuters. This news weakened the USD and provided a bullish boost to U.S. stock markets.
This shift highlights the collapse of the “carry trade” strategy, where high U.S. rates and low Japanese rates supported the rise of USD/JPY. From early 2023 to the July peak in 2024, USD/JPY rose by about 23%, but it started declining amid news of Bank of Japan’s currency interventions.
On July 25, analysing the USD/JPY chart, we:
→ Constructed a descending channel (shown in red);
→ Predicted a scenario with a technical rebound from the lower boundary of the red channel.
Since then, USD/JPY climbed to the psychological mark of 155 yen per dollar on July 30, where the downtrend resumed after a false breakout.
How might the USD/JPY situation develop?
Technical Analysis of USD/JPY Today:
→ The chart forms a structure of swing extremes A-B-C-D-E-F-G. Notably, each subsequent recovery is about 50% of the previous downward impulse, indicating dominant supply forces. The expanding channel, shown in purple, also confirms this.
→ The psychological level of 150 yen per dollar may act as support, mirroring the resistance at 155 yen. Today’s price action shows signs of demand activation below 150.
Therefore, it’s possible that:
→ After a decline of over 8% from peak A, bears may want to take profits;
→ A corrective move H→I towards the upper purple boundary could form.
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