- There is optimism that ultra-low interest rates in Japan are coming to an end.
- The dollar was weak ahead of an expected US non-farm payrolls report.
- Japan’s economy shrank faster than originally estimated in the third quarter.
As the week drew to a close, the outlook for USD/JPI turned around, led by a strong rally in the yen. The currency rose, poised for its most impressive performance against the dollar in nearly five months. The rise stemmed from increased bets that Japan’s ultra-low interest rates are coming to an end.
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Moreover, the yen’s overall strength restrained the dollar, which weakened ahead of the awaited US payrolls report later in the day.
Bank of Japan (BOJ) Governor Kazuo Ueda mentioned on Thursday that the central bank has various options for targeting interest rates after raising short-term borrowing costs from negative territory. In particular, it was the most explicit indication that the BOJ could soon end its ultra-loose monetary policy. Consequently, the yen jumped to multi-month highs against its major rivals. What’s more, it experienced its most significant daily gain since January, rising over 2% on Thursday. As such, it should have ended the week up more than 2%.
Attention now shifts to the BOJ’s upcoming two-day monetary policy meeting on December 18 for indications of a potential policy shift.
Meanwhile, revised data on Friday revealed that Japan’s economy shrank faster than initially estimated in the third quarter. That complicates the central bank’s efforts to gradually wind down its accommodative monetary policy, especially as the household sector struggles.
USD/JPI Key Events Today
Investors await key developments from the US, including
- Average hourly earnings
- Change in non-farm employment
- Unemployment rate
- Consumer sentiment
USD/JPI Technical Outlook: Price pattern hints at more downside
On the charts, the price of USD/JPI fell to new lows after breaking below the key level of 146.50. The breakout triggered a sharp decline that led to a bear breakout below the 144.01 support. Moreover, the decline allowed the price to make a big swing from the 30-SMA, confirming a strong bearish momentum.
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However, the collapse also pushed the RSI into oversold territory. This extreme level allowed the bulls to retrace to the 142.02 level for a retracement to the 144.01 level. However, the price has formed a triangle, a continuation pattern that is likely to lead to a retest and break below the 142.02 support.
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