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Abstract: The rise of USDJPY has reached 142.25, which is the key medium-term resistance after the Bank of Japan's (BOJ) monetary policy decision last Friday. Traders' latest bets on JPY futures show that the public bearish position of net large speculators is close to the three-year extreme.

Fundamentals

On Tuesday, the USDJPY continued its highest decline since November 2022. As the U.S. Dollar Index (USDX) fluctuates after facing strong resistance around 102.60, it is expected that the USDJPY will further weaken below 141.50.

From the perspective of technical analysis, the USDX is still trading in the downward channel. Last week, during the decline of the USDX, the price confirmed that the boundary of the downtrend channel was at 102.00 and entered a bullish correction on Monday. Due to the small fluctuation range, it reflects that a major event that may affect market expectations occurred last week.

Last Friday's meeting of the BOJ continued to have an important impact on the JPY. As the BOJ continues to use more powerful easing tools by controlling the yield of long-term government bonds, the market now expects the BOJ not to raise interest rates in the near future. When it approaches a certain upper limit (0.5%), the BOJ will start buying bonds, thus preventing the yield from rising further. Therefore, under the current circumstances, the long-term borrowing cost in the economy remains at a very low level.

The BOJ is expected to allow a wider range of yield changes (the declared ceiling is higher than 0.5%), but it has not even done so. This further widens the policy gap between the BOJ and other central banks that are raising interest rates. That's why the JPYUSD also weakened during last week's sharp decline.

We now expect that at the next meeting in July, the yield range of 10-year Japanese government bonds will be expanded from 0.50% to close to 1.00%. However, this may depend on the meeting of the Federal Open Market Committee. The prospect of USDJPY is overshadowed by the timing of the BOJ and the Federal Reserve. The acceleration of the USDJPY to break through 145.00 may lead to a resurgence of foreign exchange intervention.

According to the latest weekly Commitments of Traders report compiled by the Commodity Futures Trading Commission (CFTC) for the period ending June 12, 2023, sentiment in the foreign exchange futures market for JPY futures contracts listed on U.S. exchanges is tilted toward a significant increase in bearish positions on the JPY compared to three months ago. Traders' latest bets on JPY futures show that the open bearish positions of net large speculators are nearing 3-year extremes.

Technical Analysis

The recent rise of the USDJPY is determined by the combined action of many factors.

First, it was the fluctuation peak areas before November 11 and 22, 2022 that led to the sharp drop in price trend since then.

Second, this is the upper limit of the medium-term uptrend channel. Since the low of 127.72 on January 16, 2023, the price action has been fluctuating in it.

Third, this is the 61.8% Fibonacci retracement from the high on October 21, 2022, to the low on January 16, 2023.

Therefore, the convergence of these factors at the resistance level of 142.25 may indicate that from January 16, 2023, the medium-term upward trend of USDJPY may reach the end of the next corrective decline. However, as the fundamentals say, the market may intentionally continue to push down the JPY, so that the USDJPY will continue to rise after a short pause until the central bank intervenes.

In the short term, small support with a price below 141.15 may make bears test the integer threshold of 141.00. I believe there will be some long-term buying here to defend the recent upward trend. The mid-term key resistance level higher than 142.50 will invalidate the bearish tone of the next resistance level of 143.45. It could continue to rise in the future. It is recommended to buy the dips.

Trading Recommendations

Trading direction: Short

Entry price: 140.80

Target price: 145.00

Stop loss: 138.80

Deadline: 2022-07-04 23:55:00

Support: 141.09, 140.31, 139.58

Resistance: 142.50, 143.45, 145.00