Currency Analyst since 2010

USD/JPY: forecast for September 21-27

By Elizabeth Belugina

US dollar declined versus Japanese yen as the Federal Reserve refrained from raising interest rate and gave a dovish statement to the market. USD/JPY slid to 119.00.

In our view, US dollar will be a subject of the negative pressure in the short and medium term. USD/JPY has been consolidating within a triangle, and the lower border of this pattern will be vulnerable. The pair will have good support in the 118.50 area (55-weak MA), but there is technical space for correction to 116.50/00 (top of the weekly Ichimoku Cloud, uptrend support line since 2012). Resistance is at 121.00 and 121.70. 

Another factor that may add to the yen’s strength is the market’s risk aversion. The risk sentiment will turn negative if Chinese data once again disappoint. This is why pay attention to Chinese Caixin flash manufacturing PMI due on Wednesday.

In the longer term, however, dollar’s decline should be limited by the expectations of additional monetary stimulus from the Bank of Japan. Japanese central bank has discarded the idea of further quantitative easing at its September meeting. However, the lack of action from the Fed and the decline in USD/JPY should allow the Bank of Japan to ease policy – a step needed so that Japan could reach 2% inflation target.   

Note than the volume of liquidity in Asia on Monday-Wednesday will be lower as Japanese banks will be on holidays. The only important release in Japan will be inflation report on Friday. 

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