Japanese Yen (USD/JPY) Analysis

BoJ minutes extend the ‘carry trade’ as officials rule out rapid rate hikesLike clockwork, Japan’s top currency diplomat voices dissatisfaction with recent yen volatility, weaknessIG Client sentiment ‘mixed’ despite massive short positioningThe analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library

BoJ Minutes Offer Scarce New Information

The minutes from the Bank of Japan’s historic meeting where officials voted to end negative interest rates served up no new information. In fairness, this has been due to the open and transparent communication from the Bank in the lead up to and after the March meeting.

Officials confirmed that the 2% inflation target has not yet been met and that the pace of rate hikes will not mirror that seen in Western nations. The more measured approach means that the yen will continue to struggle with an inferior interest rate differential that promotes carry trades.

Later this week the BoJ summary of opinions will reveal the Bank’s inflation and growth forecasts ahead of the final Q4 GDP print for the US. In a holiday-shortened week, Friday presents the potential for an uptick in volatility if PCE data diverges from expectations. With traders off for Good Friday, the potential for volatility picks up amid the anticipated, lower liquidity environment.

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USD/JPY Edges Lower from Resistance

USD/JPY appears to have found resistance at the prior ceiling of 151.90, edging slightly lower at the start of the week. It would appear hard work for the pair to move back down to 150.00 – something that can be achieved seemingly with the help of BoJ forecasts or US PCE data, or both.

Hotter inflation and improved growth prospects in Japan after massive wage hikes may boost chances of another hike later this year – strengthening the yen. PCE data, on the other hand, will be monitored if seasonal influences affect it like we’ve noticed in CPI and PPI data thus far. Cooler PCE data could let some steam out of the resurgent dollar, which might have the effect of sending USD/JPY lower. However, these data points need to be confirmed and in the absence of any notable deviations, USD/JPY may consolidate around 151.90 this week.

USD/JPY Daily Chart

IG Client Sentiment ‘Mixed’ Despite Massive Short Positioning

USD/JPY:Retail trader data shows 14.65% of traders are net-long with the ratio of traders short to long at 5.82 to 1.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD/JPY prices may continue to rise.

The number of traders net-long is 12.74% higher than yesterday and 27.58% lower from last week, while the number of traders net-short is 4.19% higher than yesterday and 34.04% higher from last week.

Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed USD/JPY trading bias.