USD/JPY Daily Chart Analysis – 2024-05-15

The USD/JPY pair is navigating a crucial phase, with its recent rebound from this month’s low of 151.90 under close scrutiny by market analysts. Despite the bearish divergence in yield spreads, the recovery has overlooked these signals largely due to the initial decline being attributed to suspected intervention by Japanese authorities. The key challenge ahead lies in surpassing the retracement levels of the recent slide at 157.08 (61.8%), 158.20 (76.4%), and 160.24 (100%). Wednesday’s U.S. CPI and retail sales data will play a pivotal role in determining the pair’s next move. If these data points exceed forecasts, including any upward revisions, it could fuel a breakout above these critical resistance levels. On the other hand, disappointing data could exert downward pressure, testing the support zone around 155.50/00. This support is vital, as it could either confirm the current consolidation or suggest a further decline.

The yen remains the weakest among major currencies, exacerbated by the Bank of Japan’s (BoJ) cautious approach to phasing out its ultra-easy monetary policies. The Fed-BoJ rate differential, projected to reach 4.66% by year-end, further weighs on the yen. Recent Producer Price Index (PPI) data and remarks from Federal Reserve Chair Jerome Powell had minimal lasting impact on these spreads or the USD/JPY pair, as markets remain focused on the upcoming CPI and retail sales figures. The pair saw a brief spike to 156.70 following PPI results that exceeded expectations, but this was short-lived as significant downward revisions tempered the initial boost, leading to a retreat in Treasury yields and the dollar. Currently, USD/JPY is trading near its pre-PPI levels, showing slight gains and consolidating above the 50% Fibonacci retracement of the recent sharp decline from 160.20 to 151.90, which was influenced by suspected interventions. Since the May 1 peak at the 1990’s high of 160.50, the yield spreads between the 2-year and 10-year U.S. Treasuries and Japanese Government Bonds (JGBs) have narrowed by 29 basis points (bps) and 30 bps, respectively, now at 4.49% and 3.51%. This narrowing of yield spreads highlights the intricate dynamics at play, with USD/JPY poised at a significant juncture dependent on forthcoming economic data releases.