Currently, the interest rate difference between the United States and Japan is extremely significant. The Federal Reserve continues to maintain high interest rates to combat inflation, while the Bank of Japan has long maintained an extremely low interest rate policy to support economic growth. This huge interest rate spread provides strong fundamental support for the USD/JPY exchange rate. Analysts believe that in the current environment, even if there is a short-term correction in the exchange rate, the market tends to view it as a buying opportunity.

Limitations of the Bank of Japan's Policy

Although the Bank of Japan occasionally sends signals to tighten monetary policy, its ability to execute is limited. The Japanese economy is highly dependent on exports, and an overly strong yen may lead to a decrease in export competitiveness. In addition, the Japanese economy has long been trapped in the dilemma of low growth and low inflation, making the Bank of Japan extremely cautious in policy adjustments.

Based on the current fundamental situation, the market generally expects that even if the Bank of Japan wishes to adjust its policies, its efforts will be very limited. Therefore, the continued pressure on the Japanese yen has become the basic expectation of the market, further supporting the long-term upward trend of the US dollar/Japanese yen.

Market expectations and psychological factors: Analysts believe that the market has a strong bullish expectation for the trend of the US dollar/Japanese yen, especially when the exchange rate rebounds and approaches the key resistance level of 158 yen. If we continue to break through this resistance level, market sentiment may further strengthen and push the exchange rate rapidly towards 160 yen. Even if there is a short-term adjustment in the exchange rate, due to strong long-term bullish expectations in the market, the support level below the exchange rate (such as 155 yen) may still attract a large amount of buying intervention.

The support of the US economy: The strength of the US dollar not only comes from the advantage of interest rate differentials, but also from the overall stability of the US economy. Against the backdrop of high inflation, the hawkish policies of the Federal Reserve have consistently provided support for the US dollar. In contrast, the Japanese economy is struggling with long-term issues such as low inflation and an aging population, putting pressure on the yen.

Global macro environment: On a global scale, safe haven funds tend to flow more towards the US dollar rather than the Japanese yen. Although the Japanese yen has traditionally been considered a safe haven asset, the safe haven nature of the US dollar is more evident in the current market environment. Analysts believe that this macro environment makes the long-term trend of the US dollar/Japanese yen more firm.

In terms of technology, analyst Lewis provided the following interpretation:

On a technical level, the trend of USD/JPY shows a clear bullish trend. The current market structure and key points indicate that the currency pair had a strong upward trend when approaching the resistance level of 158 yen.

Trend analysis: From an overall trend perspective, the bullish trend of USD/JPY starting from 2023 will continue to be confirmed in 2024. Although there may be a pullback in the short term, the overall direction of the market remains clear and bullish. Especially as the exchange rate approaches the key resistance level of 158 yen, the market shows a strong willingness to buy.

Key resistance level, 158 yen: 158 yen is currently the main resistance level that the market is concerned about. Once this level is broken, the exchange rate may quickly rise to 160 yen. According to technical analysis, the rise of exchange rates after breaking through key resistance levels is often accompanied by an increase in trading volume, which will further strengthen the bullish trend.

Key support level, 155 yen: If the market experiences a pullback, 155 yen will become an important support level. In this region, a large amount of buying may intervene to prevent further decline in the exchange rate. In addition, the 50 day moving average near 155 yen also provides additional support for the exchange rate.

Technical indicators

50 day moving average (EMA): The 50 day EMA is an important technical indicator that many traders in the market pay attention to. In the current trend, the 50 day moving average provides strong dynamic support around 155 yen. Even if the market rebounds in the short term, as long as the exchange rate does not fall below the 50 day moving average, the overall bullish trend remains intact.

160 yen psychological barrier: 160 yen is not only a technical resistance level, but also an important psychological barrier. Once this level is exceeded, there may be a drastic change in market sentiment, and the bullish trend will further strengthen.

Short term fluctuations and long-term trends: In the short term, low liquidity in the holiday market may lead to certain fluctuations in exchange rates. However, in the medium to long term, the upward trend of the US dollar/Japanese yen is still evident. The bearish sentiment towards the Japanese yen in the market may further intensify, especially given the limited policy space of the Bank of Japan.

Technical form and market expectations: From a technical perspective, the US dollar/Japanese yen has established a stable consolidation area at a high level, indicating the market's process of accumulating strength before further upward momentum. Once the exchange rate breaks through 158 yen, the upper edge of the consolidation range will transform into a new support level, providing a foundation for further upward movement.

summary

The trend of USD/JPY is supported by both fundamental and technical factors, with a clear long-term bullish trend. From a fundamental perspective, the interest rate differential between the United States and Japan is the main driving force behind the strength of the US dollar, while the limitations of the Bank of Japan's policy tightening further exacerbate the weakness of the yen. From a technical perspective, the exchange rate is currently approaching the resistance level of 158 yen and showing strong willingness to break through. Once broken, the exchange rate may quickly rise to 160 yen.

In the future, the trend of USD/JPY will continue to be influenced by a combination of global macroeconomic environment, interest rate policies, and technological forms.