The USD/JPY pair declined to 156.13 on Thursday, as the Japanese yen regained some of its recent losses amid heightened market vigilance regarding possible intervention by Japanese authorities. Market participants are considering the potential for the upcoming US Thanksgiving holiday, a period known for reduced liquidity and lighter trading conditions, to create an opportunity for regulatory action aimed at bolstering the yen. Significantly, the potential for intervention is serving as a deterrent, effectively limiting the recent depreciation of the currency.
Fundamentally, sentiment is shifting as investors reevaluate the Bank of Japan’s policy direction. Recent media reports indicate that the central bank is diligently preparing for a possible rate hike as soon as next month. This transition is influenced by ongoing inflationary pressures, the transmission effects of a depreciated yen, and a perceived reduction in political pressure to uphold extremely accommodative monetary policies. The yen has gained further backing from a generally weaker US dollar. Market participants have heightened their expectations for additional easing from the Federal Reserve, leading to a decline in the value of the dollar against various currencies.
On the H4 chart, USD/JPY is establishing a consolidation range near 156.40. We expect a short-term drop to 154.90, which will probably be succeeded by a technical recovery to revisit the 156.40 level. A decisive upward breakout above this resistance would pave the way for a more substantial rally towards 158.47. However, following such a move, we would anticipate the establishment of a new lower high and the initiation of a fresh downward impulse, aiming for 154.00 and possibly extending the correction to 153.30. The MACD indicator reinforces this bearish medium-term outlook. The signal line is positioned below zero and trending downward, indicating that selling momentum continues to be robust.
On the H1 chart, the pair is forming a distinct downward wave structure, with an initial target set at 154.90. We anticipate that this target will be achieved, following which a corrective wave of growth is likely to occur, revisiting the 156.40 level from a lower position. The Stochastic oscillator supports this short-term negative outlook. The signal line is currently positioned below 50 and is trending down towards 20, suggesting that the short-term downward momentum is still in play at this time. The yen is gaining strength due to a combination of intervention threats and a fundamental reevaluation of Bank of Japan policy. Currently, USD/JPY is undergoing a corrective phase, with a short-term target set at 154.90. Although a recovery to 156.40 is anticipated subsequently, the overall risk leans towards the downside. A move above 158.47 would be necessary to negate the existing bearish corrective pattern. Market participants must stay alert for fluctuations driven by intervention, especially in times of reduced liquidity.