7) USDJPY

Technical Analysis (MA, RSI, STOCH, MACD, ADX)

• M30 - DOWN
• H1 - UP
• H4 - UP
• D1 - UP
• W1 - UP
• MN - UP

• Resistance: 121.65, 123.50
• Support: 118.50, 117.00, 115.50

The pair continued its recent strong bullish trend and reached a new multi-year high today. The divergence in the policy of the Fed and the Bank of Japan has strongly influenced the yen and continues to support the upward momentum. Risk appetite offset moderate weakness in the US dollar and continued to support the strong positive momentum. The market is gradually returning to its normal state, and according to the results for yesterday, the value of the Fear-Greed indicator was 44.

The pair surged overnight and reached its highest level since February 2016 during the Asian session on today. This marked the fourth day of positive movement in a row - as well as the twelfth of the previous thirteen - and in total it is almost 700 pips up from the monthly low at 114.65. The divergence in regard to monetary policy adopted by the Fed and the Bank of Japan, along with risk momentum, has strongly affected the Japanese safe-haven yen. This, to a large extent, helped offset the overall weakness of the US dollar and proved to be a key factor contributing to the pair's strong move higher.

The Fed announced the start of a policy tightening cycle last Wednesday and indicated it could raise interest rates at all six remaining meetings in 2022. In addition, Fed Chairman Jerome Powell indicated this week that the US central bank could take more aggressive action to tackle stubbornly high inflation. Investors quickly jumped on the possibility of a 50 basis point rate hike at the next FOMC meeting, pushing benchmark 10-year US government bond yields to their highest level since 2019. Conversely, Japanese 10-year bonds remained below the BOJ's 0.25% level as the BoJ remains committed to controlling the yield curve with a fixed ceiling amid ultra loose monetary policy.

This widened the US-Japan bond yield spread, which continued to act as a tailwind for the pair. Meanwhile, an extended sell-off in the bond markets has returned funds to big tech and other stocks, leading stock indices to strong gains and the US dollar to fall heavily. The statement by Fed Chairman D. Powell, in turn, pushed the yield of the benchmark 10-year US government bonds to the highest level since 2019, although it did not impress the US dollar bulls.
The benchmark 10-year Treasury yield hit an intraday high of 2.39%. In addition to Powell, yesterday Loretta Mester, the president of the Cleveland Fed, was quite hawkish, saying that it is necessary to raise the interest rate to 2.5% in 2022 to suppress inflation, and continue the cycle of increase in 2023. Also along with St. Louis Fed President D. Bullard, Loretta Mester clearly signaled a 50 basis point rate hike at the next FOMC meeting. San Francisco Fed President Mary Daly said high inflation requires interest rates to rise to neutral levels, and the Fed is considering whether to pursue restrictive policies.

In terms of macro data, neither the US nor Japan has published anything important, we only want to pay attention to the headlines of the Japanese press.
According to local media, the Japanese government has begun to prepare a new economic support package in the face of the Ukrainian crisis, which supported sentiment in Asian stock markets, further putting pressure on the yen. It should be noted that Japan's The Yomiuri recently mentioned that Japanese Prime Minister Fumio Kishida has ordered an additional economic stimulus package due to rising commodity prices by the end of March. Against this background, the Japanese stock index Nikkei 225 is actively recovering, now it is already trading at the level of the beginning of the year.

Market players are now looking forward to Fed Chairman Jerome Powell's speech at the BIS Innovation Summit later today. In addition, the yield of US bonds may affect the dynamics of the dollar price and give some impetus to the pair. Traders will continue to focus on recent events related to the Russian-Ukrainian saga. The incoming geopolitical news will encourage a broader attitude towards market risk and create some near-term trading opportunities for the pair.

Plus, do not forget that tomorrow there will be a summit of leaders of the European Union, at which they will discuss the embargo on Russian oil. Which is very important for the Japanese economy, as it is completely dependent on imports. Also in the spotlight is the NATO summit scheduled for Thursday, where V. Zelensky has been invited and can fully participate in the discussions.

In terms of macro data, we follow the weekly publication from the US labor market on Thursday:
- The number of initial claims for unemployment benefits in the US

The classic indicator of the value of a currency is central bank interest rates. This assessment of the strength of the currency, decisively benefited the US dollar. The huge difference in inflation between Japan and the US, and the necessary policy action, could see the yield curve spread between US Treasuries and JGB widen by 100-150 basis points by the end of the year. Plus, don't forget about the BOJ's policy of controlling the yield curve, in which the yield on 10-year Japanese government bonds (JGB) is close to zero, the BoJ recently once again confirmed its commitment to this policy.

Japan's economy has lagged and slowed significantly for years, and this gap with the US will continue and widen whether both countries or the world as a whole find themselves in an inflation-and-deficit-driven recession this year. The energy price shock currently affecting the global economy will hit Japan harder since almost all of its energy is imported. While the US is itself a net exporter.

Amid all this, a meta-prediction can be made that the US dollar, thanks to the Fed's promise, will be stronger compared to the currencies of countries whose rate prospects are static, including Japan. In other words, we will observe a more bullish market for the pair throughout 2022.