Is 110 next for Japanese yen?

The Japanese yen is almost unchanged in the Tuesday session. Currently, USD/JPY is trading at 108.90, up 0.06% on the day.

Dollar punches past 109

The yen is having a quiet day, but USD/JPY briefly moved into 109-territory, for the first time since June 2020. The yen has slumped in 2021, falling 5.6% against a rejuvenated US dollar. The recent rise in US Treasury yields has seen the US dollar post gains against the major currencies. The dollar has performed particularly well against the yen, as USD/JPY is very sensitive to rate differentials between the US and Japan. If US yields continue to move upwards, we can expect USD/JPY to break above 110, a line with psychological significance.

The dollar has also made inroads against the yen due to improving economic conditions in the US. A surprisingly strong US Nonfarm Payrolls was the latest sign that the recovery is gaining traction, as opposed to the weak economy in Japan. With the global economy showing signs of recovery, risk appetite has increased and investors are showing little enthusiasm for the safe-haven Japanese yen.

The struggling yen did not get any help from soft Japanese numbers earlier in the day. Final GDP for Q4 of 202o was revised downwards to 2.8%, down from the initial estimate of 3.0%. Household Spending for January fell 6.1% year-on-year, its weakest reading in four months. This marked a second straight decline, as residents were urged to remain at home during the second state of emergency due to the Covid pandemic. Wage growth, which hasn’t mustered a gain in some 10 months, came in at -0.6% in January.

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USD/JPY Technical Analysis

• USD/JPY faces resistance at 109.23, followed by resistance at 110.07
• There is support at 106.96, followed by a support line at 105.53
• There may be an opportunity for buy-on dips as low as 107.50

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