September 25, 2023

USD/JPY Drops Further Under Mid-121.00 Zones, Gets to New Daily Low Points as US Bond Retreats

A Failure at Consolidating

The USD/JPY currency pair slid to lower depths in the course of the early European session and it has recorded a new daily low point. It has gone below the mid-121.00 at the time of putting this piece together.

USD/JPY price chart. Source TradingView

The pair had a difficult time trying to capitalize on its average intraday increase, it was met by a new supply around the mid-122.00 area in the early hours of Thursday while it became lower for three days in a row. The wide expectation that the Bank of Japan’s top officials were not comfortable and were expected to respond to the recent weakness of the Japanese yen became a major factor that served as the headwind against the USD/JPY currency pair.

More importantly, the news that came in from the geopolitics in Eastern Europe punctured further hopes seeking to get a diplomatic resolution to the prolonged war between Russia and Ukraine. This development, however, serves the benefit of the Japanese yen as a safe haven asset apart from the US dollar that had enjoyed that spotlight for so long.

Blending a Hawkish a Dovish Policy for a Currency Pair

Bears, again, took a cue from the US Treasury’s continuing decline as it keeps undermining the US dollar and exerts a weighty downward pressure against the USD/JPY currency pair, although the pressure is being cushioned.

There seems to be a lot of conviction in the market that the Federal Reserve is going to implement a tighter monetary policy more rapidly and come up with a 50 basis point interest rate increase during its next two policy meetings in order to fight the skyrocketing inflation. The next policy meeting of the Federal Reserve is scheduled for May.

On the other hand, the Bank of Japan said it will stick to its very loose monetary policy for a long time to come. This gives more impetus to the possibility of a high level of dip-buying in the vicinity of the USD/JPY trading pair.

The basic background of what has been going on makes it expedient for investors to watch out carefully for sufficient follow-up sales under the weekly low points in the vicinity of the 121.20 to 121.15 zones before a confirmation can be made about the USD/JPY pair topping out.

This is going to prepare the stage for a prolonging of the steep pullback from points that are just over the psychological level at 125.00, or the highest point it had yet to be at since 2015 but it reached this week.

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