The BoJ is one of the few central banks in the world that still maintains negative interest rates. Although real interest rates in Japan remain negative, inflation is moderately low at around 3%. Looking closer, the so-called “core-core inflation,” which tracks changes in prices that consumers pay for a basket of goods (excluding prices of fresh food and energy), is rising. However, BoJ argues that wage pressures have yet to build up enough to warrant a fresh tweak to the ultra-loose monetary stance. Japan’s central bank still buys vast amounts of government bonds to cap the 10-year bond yield around 0%.
USDJPY 1W Chart Analysis, September 4, 2023
USDJPY – Is the trend about to change?
On a chart, we can clearly see early signs of trend fatigue. First, the exchange rate is approaching the levels at which the BoJ launched a currency intervention in the fall of 2022. It aimed to strengthen the yen. Indeed, it brought USDJPY to around 127 at the beginning of the current year. Between these levels, the Fibonacci retracement has been set.
USDJPY is still below the Fibo retracement of 0.786 (147), and a bearish divergence (indicated by light blue lines) is a warning signal of a possible trend change. Unlike the price, the RSI indicator could not set new highs, which can mean that the trend is getting exhausted. Moreover, the price forms a rising wedge pattern marked with the same line as at divergence and from below by EMA9. Usually, such formation heralds trend reversal. Its confirmation should be sought in the cross on the MACD and the closing of the weekly candle below the EMA9.
In case of a correction, the price should eye the Fibo retracement of 0.618 (143) and 0.5 (140). The negation of such a scenario should be the weekly candle closing above the Fibo retracement of 0.786 (147).
USDJPY 1D Chart Analysis, September 4, 2023
USDJPY – 1D confirmation.
Confirmation of the risk of a trend reversal is also present in the 1D chart. Two bearish divergences (yellow and blue lines) and a cross on the MACD on August 29 represent this. Bollinger Bands are also narrowing, and this usually precedes coming substantial volatility, which can be traded after clicking the below button.
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