USD/JPY: central bank divergences driving the bid, can USD/JPY get back above 114 and reach 115.50?
USD/JPY topped out at the overnight highs of 114.32 with the price a little stretched as markets sleep-walk their way through the week so far, fuelled by prospects of the Fed tightening next month.
The bullish sentiment is rife around the US economy while the VIX remains at 23-year lows, indicating perhaps that the markets are somewhat complacent with stocks continue to print all time highs. The US data of late has been more or less encouraging in respect to the Fed's requirements and conditions for tightening and the dollar has subsequently picked up a bid back onto the 99 handle in the DXY pushing the yen lower in a risk-on environment.
The divergence between the BoJ and Fed is compelling at this juncture, while monetary policy is expected to remain at its current, very loose, settings for an extended time, according to analysts at NAB, even with the Bank of Japan struggling to meet its inflation target. "The medium-term outlook for fiscal policy is more clouded."
BOJ Meeting Summary – policy sustainability could be an issue next year
Indeed, the ‘summary of the opinions’ of the Bank of Japan (BOJ) April monetary policy meeting released this Wednesday morning showed the need to maintain current accommodative policy due to downside risks from overseas.
USD/JPY levels
- USDJPY: Support will be seen at the100 DMA - Jim Langlands
- USD/JPY analysis: bullish ahead of BOJ's summary of opinions - FXStreet
Valeria Bednarik, chief analyst at FXStreet explained that in the meantime, the pair is nearing a critical resistance level 114.50, the 23.6% retracement of the November/December rally. "Intraday, the pair is extremely overbought with the Momentum indicator losing upward steam in the 4 hours chart, and the RSI indicator still heading higher around 78, not enough to confirm an upcoming downward move. Further gains beyond 114.50, could see the pair adding 100 pips this Wednesday, and reach March 3rd high of 115.50."