On January 3, 2019, just after the New Year celebrations got over, USD/JPY traded with extreme volatility, testing 105. Giving jitters to the market participants who were still struggling to get over their celebrations hangover. Same day we had “Flash Crash” in Asia due to automated orders, global equities tumbling and Yen soaring about 5 % against USD at 104.97. Market turned from “Risk On” to “Risk Of”, investors worried over slowing global economic growth and a probable market collapse appeared imminent.
Things have turnaround in the past three weeks. USD/JPY trades at 109.72 at the time of writing after testing 110.00 yesterday. Reducing US- China trade tensions has certainly cooled down the nerves among market participants. In the last meeting earlier, this week BOJ trimmed its inflation forecasts, reinforcing views that it will have to stick with its unprecedented economic support for some time to come. (Refer below USD/JPY movement from 3 JAN 2019- Till Date)
BOJ reiterated that it would continue buying Japanese government bonds and left its short-term interest rate target unchanged at minus 0.1 %. It also said it would keep guiding 10-year government bond yields around zero percent. This turned out be negative JPY news and it tested 110.00 against USD. This psychological hurdle, however, proved a tough nut to crack, possibly due to the pullback in Treasury yields.
Slowing global economic growth forecast, US manufacturing sector slowdown, unsettled US- China trade disputes is likely to be a very strong hurdle of USD/JPY breaching 110 mark. It is most likely to trade in the region of 106 to 110 in the near term. A convincing breach of either level will pave new direction for the pair.