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Financials
The USD/JPY exchange rate has been in the spotlight lately, particularly with the formation of a death cross pattern. This ominous sign in the technical analysis of financial markets indicates that the 50-day moving average has crossed below the 200-day moving average, typically signaling a bearish outlook for the currency pair. As the US dollar index (DXY) continues to slide, and the Federal Reserve (Fed) diverges from the Bank of Japan (BoJ) in rate decisions, many are left wondering if the Japanese yen (JPY) will continue its ascent against the US dollar.
One of the primary drivers of the USD/JPY downtrend is the divergence in interest rate policies between the Federal Reserve and the Bank of Japan. While the Fed has been hinting at further rate cuts to combat high inflation and potential recession risks, the BoJ has taken a more hawkish stance. The BoJ has delivered several interest rate hikes since 2024 to manage Japan's rising inflation, which remains above that of the US. This divergence in monetary policy is likely to continue, with the BoJ expected to raise rates further if inflation persists above 2%, thereby supporting the yen's value against the dollar.
The Japanese yen has traditionally served as a safe haven during times of economic uncertainty. This year, with trade tensions escalating, particularly with the US reintroducing tariffs under Donald Trump's policies, investors have increasingly sought refuge in safer assets. The yen's appeal as a safe haven currency has been a significant factor in its recent gains against the US dollar. Despite Japan's large trade surplus with the US, which poses some economic risks, the yen remains an attractive option for investors seeking stability.
From a technical standpoint, the USD/JPY pair has shown a clear bearish trend. The formation of a death cross, where the 50-day EMA crosses below the 200-day EMA, reinforces the downtrend scenario. Additionally, the pair has broken below key support levels and is trading below crucial moving averages, further supporting the bearish outlook. The Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) indicators also suggest that the downward momentum may persist.
Despite the bearish outlook, there are signs that the USD/JPY could see some recovery. The pair's recent rebound from oversold conditions suggests that selling pressures may be easing. However, any significant gains would need to break through substantial resistance levels, such as the 150.00 area. A sustained push above this level could be a turning point, but it remains challenging given the current bearish sentiment and technical patterns.
As the USD/JPY forms a death cross, the backdrop suggests that the Japanese yen could continue to strengthen against the US dollar. The divergence in Fed and BoJ policies, combined with the yen's role as a safe haven, supports this trend. However, potential recoveries in the pair should not be dismissed, especially if economic indicators surprise on the upside or if market sentiments shift. For now, the path of least resistance for USD/JPY appears to be downwards, with investors closely watching how these factors influence the exchange rate in the coming months.