The USD/JPY pair has been under sustained selling pressure since the week began, as reflected on the chart. The decline has been driven by a mix of political and macroeconomic factors:
→ Stronger yen following political developments. Prime Minister Sanae Takaichi secured a convincing win in Sunday’s snap election on 8 February, gaining a parliamentary majority. Despite her pledge of sizeable fiscal stimulus worth around ¥21 trillion, the yen has not weakened. Markets appear to be pricing in greater political stability and the possibility that the Bank of Japan may ultimately be forced to tighten policy in response to inflationary pressures.
→ A softer US dollar ahead of key data. The greenback has come under pressure as investors position themselves ahead of US labour market figures due on Wednesday and the CPI release on Friday. The dollar has also been undermined by reports that Chinese regulators have advised limiting exposure to US Treasuries.
Back on 26 January, when reviewing movements in USD/JPY, we:
→ highlighted a break of the long-term rising channel near the 157.700 area;
→ drew a parallel channel beneath it and suggested that, after the sharp sell-off in USD/JPY — driven by the risk of coordinated currency intervention by the Bank of Japan and the Federal Reserve — a corrective rebound was possible.
Subsequent price action confirmed this view (as shown by the arrow):
→ on 28 January, the pair posted a low marginally below the lower boundary of the parallel channel;
→ it then recovered towards the 157.700 region.
USD/JPY technical perspective
The bearish bias seen this week suggests that:
→ interim support levels within the parallel channel (marked by thick blue lines) have been breached, leaving the lower boundary as the next key area of interest for buyers;
→ the formation of successively lower highs at points A, B and D has established a clear descending trend line on the chart.
Against this backdrop, it is reasonable to infer that:
→ the sharp B→C downswing has effectively broken the market’s multi-month bullish structure;
→ the subsequent C→D rebound, which reached the 78.6% Fibonacci retracement, represented a temporary correction within a developing bearish reversal.
Continued respect for the red A–B–D trend line over time would add further weight to this scenario.
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