In a surprising turn, the USD/JPY has soared to an 11-month high. Even in the face of a positive Q3 Tankan report and efforts to intervene verbally. Improved business sentiment among major Japanese corporations has largely driven the movement. The USD/JPY maintains its relentless upward trajectory despite the upbeat, longer-term inflationary outlook.
Momentum and Yield Spread Premium Propel USD/JPY’s Climb
There are two major factors driving behind the current surge in USD/JPY. One: a momentum factor. Another: the potential expansion of the 10-year US Treasury/JGB yield spread premium. This dynamic supports the ongoing bullish trend, at least in the short term. Especially considering key resistance levels at 150.00/150.30 and 150.80/150.90.
The Q3 Tankan survey has revealed a striking surge in sentiment among both large manufacturers and non-manufacturers. Large manufacturers’ sentiment reached 9 points, a significant increase from the previous 5 points recorded in Q2. Likewise, the non-manufacturers index soared to a 32-year high of 27 points in Q3, up from 23 points in Q2.
Inflationary Expectations and “Verbal Interventions” Counter JPY Strength
Despite positive economic data, including elevated inflationary expectations, price actions have defied fundamentals and countered the latest “verbal interventions” from Japan’s Finance Minister Suzuki and Chief Cabinet Secretary Matsuno. This suggests that the current short-term bullish trend of JPY to EUR is sustained by factors beyond immediate economic indicators.
The yield premium between the 10-year US Treasury and 10-year JGB remains on an upward trajectory, with the current spread at 3.85%. Anticipations of a potential positive 14 basis points and an upward movement in the yield premium could further bolster the JPY to pounds, at least in the short term.
Bullish Momentum Breakout in Daily RSI
The daily RSI indicator for USD/JPY showcases a bullish momentum breakout, indicating a sustained upside momentum. This underpins the potential for further upward movement in USD/JPY.
On the shorter-term 1-hour chart, USD/JPY’s price movements remain under restriction within a minor ascending channel. The channel flow has been active since the low of September 1, 2023, at 144.44. Maintaining support at the pivotal level of 149.16 could pave the way for a potential short-term upswing toward key resistance levels.
USD/JPY Technical Analysis: Favorable Conditions for US Dollar
The US dollar remains in an advantageous position against the 500 JPY, bolstered by a substantial interest rate differential between the Federal Reserve and the Bank of Japan. Despite potential resistance at the ¥150 level, the overall trend appears poised for further upward movement, driven by these fundamental factors.
In conclusion, the 1 JPY to USD’s remarkable ascent to an 11-month high signifies a robust bullish trend, defying economic data and verbal interventions. Supported by momentum and yield spread dynamics, this surge may persist in the short term. However, vigilance is advised for potential key resistance levels as the USD/JPY continues its upward trajectory.