Japanese Yen Analysis: USD/JPY, EUR/JPY, and GBP/JPY Bullish Outlooks Under Threat

Japanese Yen Takeaways

• The yen has seen a small bounce after BOJ Governor Ueda hinted at a “quiet exit” from negative interest rates…but expectations for anything substantial remain subdued.
• USD/JPY remains in a relatively healthy uptrend with potential for a move toward 149.00…
• …whereas the EUR/JPY and GBP/JPY uptrends look vulnerable as rates test key support levels.

Japanese Yen Fundamental Analysis

Over the weekend, BOJ Governor Ueda hinted that the central bank could make a “quiet exit” from negative interest rates by the end of the year.

While such a development would mark a big change from the central bank’s monetary policy of late (the country’s target rate has been pinned to -0.1% since the start of 2016), traders aren’t necessarily confident this will mark the beginning of an expansive new rate hike cycle. Indeed, traders currently expect the BOJ’s target rate to sit at roughly (positive) 0.1% a year on from now, which when other central banks are adjusting rates by 25bps increments monthly, is relatively insignificant.

Regardless, Governor Ueda’s comments have stemmed the bleeding in the yen so far this week, leaving the “Big 3” yen crosses at interesting levels as we move through the middle of the month.

Japanese Yen Technical Analysis – USD/JPY Daily Chart

Source: TradingView, StoneX

The most widely-traded yen cross is the strongest of the bunch from a technical perspective. USD/JPY is holding well above its 50-day EMA, buoyed by ongoing strong US data, though it is notable that the pair is showing a small bearish divergence with its 14-day RSI. In other words, momentum appears to be waning despite the new price highs over the last month, signaling a potential reversal to come. In any event, the technical bias remains bullish for a possible test of last November’s highs near 148.80 as long as support in the 145.00 area holds.

Japanese Yen Technical Analysis – EUR/JPY Daily Chart

Source: TradingView, StoneX

By contrast, EUR/JPY is already testing its rising 50-day EMA as we speak, a level made all the more significant given the confluence of a bullish trend line and previous lows in the same zone. Bulls will be hoping for a clear bounce off that support level heading into next week to set the stage for a retest of 160.00 resistance, whereas a weekly close below 157.00 could open the door for a deeper retracement into the mid- or lower-150.00s next.

Japanese Yen Technical Analysis – GBP/JPY Daily Chart

Source: TradingView, StoneX

Like its European cousin, GBP/JPY is probing possible support at its 50-day EMA as we go to press as well. The pair has formed a slight bearish channel over the last month, but only time will tell if it marks the reversal of the longer-term uptrend or a mere “bull flag” or short-term pullback. For now, the key level to watch around the weekly close is near 182.50, with all eyes shifting to UK data next week (CPI, BOE, and Retail Sales) to drive trade.

With a couple of key yen crosses testing critical support, price action over the next 30 hours will go a long way toward determining if the year-to-date trends extend or end from here.

-- Written by Matt Weller, Global Head of Research

Follow Matt on Twitter: @MWellerFX