Japanese Yen Technical Analysis: USD/JPY, GBP/JPY, EUR/JPY

Japanese Yen Talking Points:

• USD/JPY is back to testing the 150.00 handle but notably, the pair has held up a bit better than DXY so far through this week’s open.
• GBP/JPY was back-and-forth grind last week as the pair re-tested the 190.00 handle, and now that bulls have broken through, GBP/JPY could be more attractive for bearish JPY themes.
• EUR/JPY and USD/JPY could be more attractive for Yen-strength scenarios, but the driver behind that has taken a step back after last Thursday’s Tokyo CPI numbers. Inflation remains the hot point there after the National CPI numbers that were released on February 20^th.

Coming into last week there were fears of carry unwind scenarios, pushed along by the prior week’s National CPI print out of Japan. In that data point, headline CPI continued to impress, coming in at 4% and this compares to the most recent headline CPI print out of the United States that came in at a 3% level. That dichotomy highlights the possibility of policy shifts ahead, with the potential for higher Japanese rates and lower U.S. rates, which could further press the carry trade, similar to what happened last year from the July highs in USD/JPY when carry unwind drove a global de-leveraging event across several markets, U.S. equities included.

Perhaps more pressing behind that fear is the trend of Japanese inflation, where headline inflation has continued to jump since coming in at 2.3% last November’s release. In December, that data point was at 2.9%, and then at 3.6% for January’s release. When it came out at 4% on February 20^th, it helped to drive the USD/JPY pair below the 150.00 handle for the first time since early-December.

That fear took a step back last week as helped along by Tokyo CPI numbers, with Core Tokyo CPI printing at 2.2% v/s the 2.3% expectation. That helped USD/JPY to rally and then with the Friday jump in USD, USD/JPY was back above the 150-handle, eventually finding resistance at the 150.77 Fibonacci level.

To start the month of March, the US Dollar has taken a drubbing as the currency has erased the entirety of gains from last Thursday and Friday. In USD/JPY, however, the pair has held up a bit better, as today’s range currently remains inside of the Friday rally in the pair and the 150.00 level has so far held as support.

USD/JPY Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

USD/JPY Shorter-Term

From the four-hour chart, there’s still a recent pattern of higher-highs and lows to work with and given the fact that USD/JPY has held up a bit better than DXY, the pair could remain accommodative for bullish-USD scenarios. However, as discussed in the video, there could be greener pastures elsewhere for those that are looking to work with Yen-weakness.

In USD/JPY, 150.00 has held today’s low so far and the prior higher-low at the Fibonacci level of 149.23 adds additional bullish structure. If bulls fail to hold that support, the four-month-low is exposed at 148.65, which was in-play as support early last week.

For resistance, the 151.51 level remains of note, with the 151.95 level above that.

USD/JPY Four-Hour Price Chart

Chart prepared by James Stanley; data derived from Tradingview

GBP/JPY

For Yen-weakness scenarios, GBP/JPY could be more attractive than USD/JPY. I had looked at the bullish backdrop behind GBP/USD earlier today and from GBP/JPY, there’s some recent dynamics that jump out.

When USD/JPY broke down to a fresh low on the back of the CPI release on February 20^th, GBP/JPY held at a higher-low above the 188.00 test from earlier in the month. And then last week, the pair was mostly grinding sideways but there were higher-highs each day of the week, leading to this week’s breakout above the 190.00 level. Current resistance has held around 192.00 but comparing the below chart to the above four-hour outlay of USD/JPY, the deviation is apparent, and GBP/JPY could remain as a more attractive venue for JPY-weakness scenarios.

GBP/JPY Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

EUR/JPY

I’m looking at EUR/JPY as a candidate for JPY-strength scenarios, although as discussed in the video, USD/JPY may retain a more attractive stance for that theme.

Nonetheless, the European Central Bank is expected to cut rates at their meeting later this week, and imagining any rate hikes out of the bank seems a distance prospect. But, looking at this from a bigger-picture perspective, USD/JPY remains well above it’s low from early-August, when the carry unwind theme was running rampant. In USD/JPY, that low printed around 141.75. In GBP/JPY, the low on that August 5^th spike was just above the 180.00 handle, or more than 1,000 pips away from current spot prices.

But in EUR/JPY, that 155.00 level that had come into play that morning was back in the equation last Friday, helping to set the low before a bounce took over.

From the daily chart below, I have the pair in a descending triangle formation, which is bearish and keeps the door open for deeper breakdown scenarios. If we do see Yen-strength taking over again, I think this would remain an attractive venue for that theme.

EUR/JPY Daily Price Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Strategist