USD/JPY Forecast – US Dollar Continues to Drop Against The Yen

US Dollar vs Japanese Yen Technical Analysis

In the early hours on Monday, the US dollar has continued to fall against the Japanese yen and now we’re starting to threaten the idea of breaking towards the 140 yen level. The question is, of course, is the market oversold? And yes, it is, but this is also the result of the yen carry trade being unwound. When that happens, it can be quite vicious. I am not calling for it, but this is exactly how the 2008 cycle acted.

It’ll be interesting to see how this plays out because the Japanese really couldn’t afford much in the way of interest rate hikes and this will show up in the Japanese economy. The Nikkei 225 is falling apart, so this is almost like a game of chicken. A lot of hedge funds around the world borrowed in yen in order to buy AI stocks. And since the AI trade has unwound, that has them repatriating their loans and therefore driving up the value of the yen.

Does it go lower? I think probably, but at this point in time, I’m still not willing to chase this trade and I think what we need to see is a significant bounce and a retest of the trend line to make a decision as to where we should go. If we break down below the 140 yen level, I suspect this pair could find their way down to the 136 yen region.

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