USDJPY Technical Analysis – MACD Divergence reversed

The US dollar fell back sharply against the Japanese yen currency due to optimism that the Fed could start to become less aggressive with its rate hikes and the Bank of Japan may alter its policy to accommodate rising inflation.

Technical analysis is clearly showing that the USDJPY pair has reversed negative price divergence extending down to the 131.00 price area during the recent epic drop which saw a 500 pips decline.

In terms of explaining the move lower Rabobank make a great case. The bank analyst team notes that “The BoJ is clearly the outliner amongst its G10 peers. While all the others are gripped by a determination to dampen the inflation rate, the BoJ is attempting to nurture it.”

Rabobank add that “Having struggled with disinflationary and deflationary pressures for decades, Governor Kuroda sees an opportunity to finally create a virtuous cycle between wage inflation, demand and corporate profitability. Speculators have been disappointed that the BoJ has stuck to its hugely accommodative policy during the past few months. “

And finally they note that “However, green shoots are appearing in relation to wage inflation that suggest that the BoJ could alter its YCC policy in the foreseeable future on its own terms. The move lower in US bond yields from their June highs and the resultant fall in the spread vs. JGB yields has reduced pressure on the JPY and, for now, vindicated the decision of Kuroda not to pander to speculators. USDJPY is likely to remain sensitive to moves in US yields. For now it seems that USDJPY may favour a 130 to 135 trading range.”