On Friday (March 7th), before the European market opened, the USD/JPY continued to hover near a nearly five month low, as market expectations for further interest rate hikes by the Bank of Japan continued to rise. In addition, global markets were concerned about external tariff policies and uncertainty about future economic growth prospects, driving the yen to continue to strengthen with the support of safe haven demand.

At the same time, the market is waiting for the release of the US non farm payroll (NFP) data in the evening, and the overall cautious sentiment is putting pressure on the US dollar, thereby helping the US dollar/yen maintain a weak performance. It is worth noting that the exchange rate hit the 147.31 line yesterday, the lowest level since October last year, which has made the market highly concerned about the future direction.

Fundamental analysis

From a fundamental perspective, the strengthening of the Japanese yen can be attributed to the following main factors:

Bank of Japan's interest rate expectations rise

The statement made by Shinichi Uchida, Deputy Governor of the Bank of Japan, earlier this week has continued to fuel market expectations for further interest rate hikes in Japan. He emphasized that the central bank may adjust interest rates at a relatively steady pace based on market and economist opinions. Against this background, the yield of Japan's 10-year treasury bond bonds rose to the highest level since 2009, indicating that the market's bet on further tightening of monetary policy in Japan has significantly strengthened. The expectation of narrowing interest rate spreads has led to a rare strength of the Japanese yen among G10 currencies.

Global market risk sentiment is fragile

Recently, there have been fluctuations in the United States' high tariff policies towards Canada and Mexico. The latest news shows that the US government has temporarily exempted goods that comply with the USMCA agreement for a period of one month. However, the repetitiveness of these policy changes has exacerbated the market's unease with the external environment. The overall performance of the stock market has been weak, driving up risk aversion and making the Japanese yen sought after due to its safe haven nature.

Doubts about the direction of Federal Reserve policy

The market's expectation for the Federal Reserve to cut interest rates again in the coming months continues to rise. The recently released initial jobless claims data in the United States has dropped to 221000, lower than the previous week's 242000, indicating that the job market remains resilient in the short term; However, ADP employment increased by only 77000 in February, far below the expected 140000, and Philadelphia Fed President Patrick Harker also stated that although the fundamentals of the US economy are robust, the outlook for consumption and inflation still faces potential downward pressure.

At present, the market believes that the possibility of the Federal Reserve cutting interest rates in March is extremely low, but there is still disagreement on whether to take action in May, and more inclined towards the expectation of further interest rate cuts in June and September. If non farm payroll data weakens again, it may increase bets on future interest rate cuts, thereby suppressing the US dollar.

US non farm payroll data becomes the focus of attention

The market generally expects that the non farm payroll in the United States will increase from 143000 in January to 160000 in February, and the unemployment rate will remain at 4%. If the data falls short of expectations or further strengthens the probability of the Federal Reserve cutting interest rates within the year, the short-term pressure on the US dollar may deepen; On the contrary, if the non farm performance is better than expected, the US dollar is expected to rebound, which will provide a certain boost to the US dollar/Japanese yen.

Technical analyst interpretation:

Based on the recent USD/JPY daily chart, the exchange rate has shown a two month downward trend since early January. Especially this week, breaking through the sideways support band of 148.70-148.65 is seen as an important technical signal for bears to further strengthen. However, it should be noted that the Relative Strength Index (RSI) on the 14th has approached the oversold zone, indicating the need for short-term consolidation or even a slight rebound. The following are key positions and possible strategies for dealing with long and short positions:

Support level and downward space

Yesterday (Thursday), the low point of 147.31 has become the first support level for bulls' short-term defense in recent times. Once it falls, the integer level of 147.00 will be the next observation point.

If bears make further efforts, the two levels of 146.40 and 146.00 are worth paying attention to. Further downward space may extend to the 145.60-145.50 region and the 145.00 level, and there is a chance for the trend to continue during this period.

Resistance level and rebound potential

In the short term, the previous support band of 148.65-148.70 has transformed into rebound resistance. If the exchange rate can break through this range, it is expected to briefly reach the 149.00 integer level.

If technical short positions are filled or fundamental news is positive, bulls may further push the exchange rate towards the psychological level of 150.00 or even 150.60. If this position is strongly broken through again, the 151.00 and even 151.30 areas (the high point of this month) may once again enter the bullish view.

Overall, the US dollar/Japanese yen has accumulated a lot of bearish gains after consecutive declines, coupled with the potential impact of US non farm payroll data on market sentiment, there is a possibility of short-term rebound and severe fluctuations in the exchange rate. If the data suppresses the US dollar again, the Japanese yen may further climb; On the contrary, once the employment performance in the United States is impressive, bulls may wait for an opportunity to counterattack, leading to a short-term recovery in the exchange rate.