Chapter 47  07/25 USDJPY: We Change Our Previous Bearish Views as the Structure Adjusts

Abstract: The market generally believes that there will be no major events at the Bank of Japan (BOJ) meeting on Friday. Interest rate or yield curve control expectations remain unchanged, but the USDJPY follows the yield difference as before. The USDJPY may rise slightly due to the risk-free event of the BOJ meeting, but it will fall sharply if there is any change.


The market believes there will be no major policy adjustment at the BOJ meeting on Friday, but the BOJ may raise its inflation forecast for the fiscal year. The cancellation of the yield curve control policy or raising interest rates will require the BOJ to see more stable wage growth and upgraded long-term inflation prospects.

Any adjustment or cancellation of the BOJ's control over the yield curve will not change the pattern of the JPY market, because it is unlikely to herald an "appropriate" tightening cycle.

Despite this, the BOJ still has a 30% chance to consider revising its YCC policy. The unexpected adjustment of YCC may lead to a conditioned surge in the JPY, and the USDJPY may fall to 135.00. If there is no policy adjustment, the USDJPY may rebound to 144.00, but intervention risk may limit further increase.

The YCC adjustment is indeed only a matter of time, but the more fundamental normalization of the ultra-loose monetary policy of the BOJ should wait until mid-2024, which means that any rise of the JPY after the YCC adjustment will be short-lived.

This year's intervention to support the JPY may be more difficult than last year's because it is difficult to prove it to the international community when the economy and the stock market perform well.

Financing arbitrage will be the main driver of the JPY. Strong U.S. growth and employment data will lead to fewer U.S. rate cuts in 2024, which could boost JPY arbitrage trading.

07/25 USDJPY: We Change Our Previous Bearish Views as the Structure Adjusts-Pic no.1

Technical Analysis

The Federal Reserve will embark on a two-day policy meeting starting today. The market generally expects the Fed to raise interest rates by 25 basis points, but investors seem to be more concerned about the Fed's next move signals.

The USDJPY closed above 141.00 on Monday. On Tuesday, Asia and Europe remained neutral, and the further rebound was moderate. With the structural adjustment, we changed the previous bearish development. On the upside, a breakthrough of 141.93 will restore the rebound from 137.22 to 145.06 to our target range of 144.20. On the downside, falling below the 139.74 support will retest the 137.22 range.

Overall, the USDJPY will likely continue to trade around the 141.00 range until the Fed announces rates this week. If the USDJPY falls sharply and then forms a lower swing low, then the bearish trend will continue. Conversely, if the USDJPY can rise and form higher swing highs, then the bullish trend could continue. It is recommended to buy the dips.

Trading Recommendations

Trading direction: Long

Entry price: 141.00

Target price: 144.20

Stop loss: 139.70

Deadline: 2023-08-08 23:55:00

Support: 141.15, 140.91, 140.22, 140.00

Resistance: 142.07, 142.49, 143.00, 143.21

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