USD/JPY Analysis: USD looks ahead

The US dollar began to decline significantly during Friday’s session. However, after the jobs report revealed an unexpectedly strong performance, the US dollar rose against the Japanese yen. This development has raised optimism about the possibility of recovery. Although there is ongoing speculation about the Bank of Japan normalizing interest rates, this is still a fairly remote possibility at this point.

More importantly, the Fed appears to have gained another incentive to maintain a dovish stance, as a strong labor market suggests that inflation is likely to remain a challenge. The formation of the hammer candlestick during the Friday session provides technical support for the idea that there may be willing buyers in the market. If the market succeeds in breaking through the ¥145 level, this will open up the possibility of a rally towards the ¥147 level, which is the point from which the recent downturn began. However, the belief that the Bank of Japan will take significant action remains speculative, and it is likely only a matter of time before the bullish rally is achieved. Conversely, if the market breaks the lower limit of the scanning candle from Thursday, this will indicate the possibility of a new downtrend.

While the US dollar is struggling against many currencies, the Japanese yen presents a unique scenario, characterized by persistent negative interest rates. In the coming weeks, expectations depend on crucial events, with particular attention directed towards the Bank of Japan’s interest rate decision and statement. Additionally, market participants have to contend with the diminishing liquidity characteristic of the holiday season, as festive considerations tend to overshadow market dynamics. However, the upcoming Bank of Japan meeting later this month stands out as the next major driver, closely followed by the ever-important bond yields that are constantly weighing on this pair.

Ultimately, the US dollar started on a downward trajectory but reversed course on the back of strong jobs numbers. This has sparked optimism about a potential recovery, as the Bank of Japan’s actions remain a matter of speculation. The Fed’s position remains closely tied to the strength of the labor market and its effects on inflation. Technical signals suggest buyers could be interested, but the market’s next direction depends on key events, including the Bank of Japan meeting and bond yields, all against the backdrop of holiday liquidity constraints.

Possible signal: If the market notices that the Bank of Japan cannot do much on the 19th, this pair will rise. A daily close above 145.20 pushes me to buy again. I would place a stop at 143.90, and a target at 147.13 above.