USD/JPY Forex Technical Analysis – Hovering Above Four-Month Low After BOJ Opens Door to Less-Dovish Policy

The Dollar/Yen is edging toward a four-month low on Thursday, after the Bank of Japan’s surprise tweak to its bond yield control earlier this week provided a catalyst for trade in an otherwise dull week ahead of year-end holidays.

At 08:00 GMT, the USD/JPY is trading 131.915, down 0.552 or -0.42%. On Wednesday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $70.51, down $0.37 or -0.535.

On Tuesday, the USD/JPY hits its lowest level since August 2 in the aftermath of the BOJ’s decision to allow the 10-year bond yield to move 50 basis points either side of its 0% target, wider than the previous 25 basis point band.

Yesterday, the Forex pair rose only 0.6%, after the greenback failed to meaningfully recoup much of Tuesday’s 3.8% plunge.

What’s the Next Step?

The BOJ opened the door to a possible hike in its benchmark interest rate in March or April, but traders are wondering if sellers are going to continue to pound the USD/JPY until then or allow for a retracement before resuming the selling pressure.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through the Aug. 2 main bottom at 130.412 will reaffirm the downtrend. A move through 138.173 will change the main trend to up.

On the upside, the nearest resistance is a minor pivot at 134.365, followed by a Fibonacci level at 136.135.

Daily Swing Chart Technical Forecast

Trader reaction to 131.550 is likely to determine the direction of the USD/JPY on Thursday.

Bullish Scenario

A sustained move over 131.550 will indicate the presence of buyers. Taking out 132.528 will indicate the buying is getting stronger. This could trigger an acceleration into the pivot at 134.365.

Bearish Scenario

A sustained move under 131.550 will signal the presence of sellers. A trade through 131.508 will indicate the selling pressure is getting stronger. This could trigger a further break into the main bottom at 130.412. This is a potential trigger point for an acceleration to the downside with 126.362 the next major target.