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Currency Analyst since 2010

USD/JPY remains well supported

By Elizaveta Belugina

USD/JPY tested 115.60 (38.2% Fibonacci of the October-December advance) on Dec. 16 and then recovered to the 120 yen area. The borders of the uptrend channel have become clearer. On the weekly chart the pair formed a candle with a long lower shadow – this candle will make support at 115.60 stronger. Rather strong resistаnce is located at 122 and 123.50.

Summarizing the results of the results of the past year, I’d like to say that despite being overbought USD/JPY rose by more than 10%. The pair was driven up by the tapering of monetary stimulus in the US on the one hand and the increase in stimulus in Japan on the other hand. The Bank of Japan confirmed its pledge to annually increase monetary base by 80 trillion yen ($669.40 billion) though aggressive bond purchases. Prime Minister Shinzo Abe has gained support of the voters and delayed the second increase of the sales tax which could have had a very negative impact on Japanese economy. Abe’s government and the Bank of Japan are focused on achieving the inflation target. For this they will need weaker yen. As a result, in 2015 USD/JPY may reach 124 and even 130 yen per dollar. The risk for such scenario is that some Japanese officials are concerned that yen’s decline was too rapid.

The head of the Bank of Japan Kuroda will speak on Thursday, Dec. 25. On Friday Japan will publish inflation and retail sales data – this will be the final release of this year. In the first week of January the nation will release core machinery orders on Jan. 9.

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