GemForex - USD/JPY

The Japanese Yen has been making a comeback over the past couple of weeks following a prolonged period of weakness this year. 

USD/JPY appears to be reversing ahead of the June low (128.60) as it attempts to halt a four-day decline, and the exchange rate may stage a larger advance over the coming days as the Relative Strength Index (RSI) holds above-oversold territory.

USD/JPY had traded to rather uncomfortable levels for Bank of Japan (BoJ) and Government officials. USD/JPY pushed towards 140 but failed and traded around 136/137 before the large move on Thursday. Since then, the yen has continued its momentum, breezing past several support levels. USD/JPY traded between the psychological level of 130 and 131.35, before continuing its uptrend towards 133.250.

Signs of a potential reversal have been brewing in the prior weeks as the RSI signaled negative divergence – prices rising higher despite the RSI making lower highs. A break below 130 would certainly add to the bearish bias while a failure to break below this level may see a pullback towards 131.35 or 133.20.

USD/JPY bounced back from a fresh weekly low (130.39) to largely track the rebound in US Treasury yields, and the exchange rate may stage a larger rebound ahead of the US Non-Farm Payrolls (NFP) report as the recent decline fails to push the RSI below 30.

As a result, USD/JPY may continue the momentum amid fresh data prints coming out of the US that may keep the exchange rate afloat as the economy is expected to add 250K jobs in July.

The Yen is likely to benefit from declining US treasury yields, recession fears (inverted yield curve, lower future EPS forecasts) and continue to act as a safe haven amid the potential of renewed US-China tensions, and it remains to be seen if the diplomatic situation in the Indo-Pacific region will lead to escalations or diplomatic and financial consequences.