The USD/JPY pair reached 114.90 today, thereby updating the monthly price high. This currency pair is one of the few pairs of the “major group” that demonstrates increased volatility against the background of general market indifference. The yen is getting cheaper not only when paired with the dollar, but also in many crosses – in particular, GBP/JPY and EUR/JPY. This suggests that the growth of the USD/JPY pair is due not only to the strengthening of the greenback, but also to the general weakening of the Japanese currency. Given the dynamics of the upward trend, it can be assumed that bulls have not yet exhausted their potential. The main targets of the upward movement are 115.50 (almost a 5-year high reached at the end of November) and 116.00 – this is the upper line of the Bollinger Bands indicator on the weekly chart.
In general, the outgoing year was not on the side of the yen. Paired with the US currency, it has lost more than a thousand points in 12 months. If on January 1, 2020, traders opened trading at 103.10, then today the price is gradually approaching the boundaries of the 115th figure. Almost all fundamental factors, both economic and general, played against the yen. If last year the yen enjoyed increased demand amid rising anti-risk sentiment (in March 2020, the USD/JPY pair updated a four-year low), then this year the “coronavirus factor” has ceased to be an ally of the yen.
The first year of the pandemic was marked by panic, confusion and fear of an unknown virus. Almost the entire 2020 was accompanied by extremely strict quarantine restrictions and strict lockdowns, which seemed hopeless and unprecedented at the time. Against this background, the yen was in high demand as a protective tool. During the second half of 2020, USD/JPY steadily declined, reaching the 102nd figure in December. But in January of this year, the pair turned 180 degrees and has been steadily going up since then, occasionally allowing downward pullbacks. These rollbacks were caused either by the dollar’s temporary weakness, or by a surge in anti-risk sentiment (the appearance of a Delta, the threat of a large-scale financial crisis due to the bankruptcy of China Evergrande, etc.). But in each case, the growth of anti-risk sentiment was temporary. Even the notorious Omicron, which scared scientists with 32 mutations, strengthened the yen for just a few days. They lost interest in the Japanese currency as soon as it became known that the vaccines already created (especially with the introduction of a booster dose) protect the average patient from a severe course of the disease and from death. A little later, the leading pharmaceutical giants assured the World Health Organization that they would be able to “upgrade” the created drugs, and the USD/JPY upward trend resumed.
In other words, in 2021, the world community has a clear plan to combat coronavirus – this is mass vaccination. According to the latest data, almost 49% of the world’s population has been fully immunized to date, although the distribution of vaccines remains uneven. For example, high-income countries have already been able to launch a booster vaccination campaign, thereby stopping the spread of Omicron, whereas in the poorest countries only 7% of the population are vaccinated with one dose. At the same time, according to the WHO director general, next year there will be enough vaccines to vaccinate the entire adult population of the world.
And if the “coronavirus factor” has stopped playing on the side of the yen, then the divergence of the positions of the Federal Reserve and the Bank of Japan has only increased the pressure. As you know, the US Fed is preparing to end the stimulus program ahead of schedule next year and begin tightening monetary policy. And although there is no consensus on the market regarding the pace of implementation of the hawkish scenario, most experts are confident that the Fed will raise the rate twice during 2022 (many do not exclude a triple increase). In turn, the members of the Governing Council of the BOJ at their last meeting maintained a cautious and wait-and-see attitude, assuring market participants that they would implement an ultra-soft policy. According to a number of analysts, the Japanese central bank will remain one of the most dovish central banks next year.
These “two whales” keep the upward trend of USD/JPY, which with a high degree of probability will continue to develop in early 2022. Therefore, it is advisable to use any more or less large-scale price rollbacks as an excuse to open long positions. The technique says the same. On the daily chart, the pair is above the Kumo cloud of the Ichimoku indicator and above all of its lines. The bullish Parade of Lines signal indicates the potential for further price growth. In addition, the pair is located on the upper line of the Bollinger Bands indicator. This is also indicative of the bullish sentiment of traders. The level of 115.50 can be considered as the closest target of the upward movement – this is the resistance level corresponding to the upper line of the Bollinger Bands indicator on the W1 timeframe.
The material has been provided by InstaForex Company – www.instaforex.com