The USD/JPY experienced a decline in early trading, primarily driven by increased demand for safe-haven assets and a contraction in the yield differential between US Treasury and Japanese Government Bonds. The pair was recently observed at 144.74. According to OCBC FX analysts Frances Cheung and Christopher Wong, the possibility of a short squeeze in USD/JPY cannot be discounted.
Technical indicators suggest a mild bearish momentum with a declining Relative Strength Index (RSI), indicating downside risks. Key support is identified at 144.10, while resistance levels are observed at 147, 148.75 (21-day moving average), and 150.30 (50-day moving average). The analysts caution that a potential increase in US Treasury yields could lead to a reversal and a subsequent appreciation of the USD/JPY.
Despite the short-term volatility, OCBC maintains a longer-term bearish outlook for the USD/JPY, predicated on continued safe-haven flows and the anticipated divergence in monetary policy between the Federal Reserve (Fed) and the Bank of Japan (BoJ). Specifically, the expectation is for the Fed to initiate a rate cut cycle, while the BoJ retains the capacity for further policy normalization.
