The first decade of October was a bad time for the USD/JPY buyers. US dollar lost more than 200 pips against the yen, retracing from the strong resistance at 110. A close below 108 yen on a weekly basis (23.6% Fibo from the July-September rally) will provoke a new wave of selling. Next bearish targets lie at 106.60 and 105.40. The medium term picture remains clearly bearish below 109.40 yen, so our recommendation is a “SELL”.
From the fundamental view, divergence in monetary policy expectations in US and Japan has narrowed. On the one hand, the US Federal Reserve released dovish policy minutes on the past week that lowered expectations for a sooner rate hike. The US dollar retraced lower versus all the major currencies. On the other hand, expectations for an additional easing in Japan declined: according to the September BOJ minutes, negative effect from the April tax hike gradually wanes. Lower easing expectations are supportive for the yen.
Kira Iukhtenko, FBS analyst