USDJPY declined on Tuesday as narrowing yields on US treasury bonds and Japanese Government Bonds defined the market trajectory. The pair traded at 149.38, down by 0.2% during the New York session, bringing its monthly losses to 4.2%. In addition, the US dollar is down by 1.7% against the yen, compounding the near-term bearish momentum.
US President Donald Trump on Tuesday reiterated that tariffs against imports from Canada and Mexico will come into effect starting next month. That has given the dollar some advantage over the yen due to its relative safe haven status. Also, the tariffs are expected to keep inflation on the ascent, prompting the Federal Reserve to keep interest rates unchanged in the first quarter of the year.
Yields on benchmark 10-year US treasury bonds were at 4.321%, down by 22 basis points in the last month. On the other hand, Japanese yields were at 1.352%, up by 15.7% in the last month. The narrowing gap between these assets has endeared the yen to investors in recent weeks.
In addition, Bank of Japan (BoJ) Governor Kazuo Ueda has indicated that the bank could raise rates if the economy sustains its growth momentum. US GDP data and Personal Consumption Expenditure (PCE) figures expected on Thursday and Friday respectively will be highlight of the week, and likely to influence USDJPY trajectory in the coming days.
USDJPY Prediction
USDJPY pivots at 149.60 and resistance at that level will subdue the upside, with the sellers taking control. Such momentum is likely to find initial support at 148.88. However, an extended control by the sellers will break below that level and could see the second support established at 148.50.
Alternatively, moving above 149.60 will favour the buyers to take control. If that happens, the USDJPY currency pair is likelyu to move higher and encounter the first resistance at 150.10. Breaching that barrier will invalidate the upside narrative and could test the second resistance at 150.56.
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