USD/JPY: Heads towards the 136.00, post BOJ minutes

Jul 26, 2022

The USD/JPY pair trimmed down posting a low of 136.30 levels during the early Tuesday’s Asian session. The pair was on a corrective move up during Monday’s late US session owing to softer treasury yields and fears of recession, but it has opened the day in negative territory.

Bank of Japan maintained its dovish tone on maintaining a low interest rate policy to support the economy ensuring inflation was maintained along with increase in wages. The statement therefore was expected by market participants but the fears of recession around the globe will be crucial to the Yen’s performance.

Recently, two US Treasury officials, Ben Harris, Treasury Assistant Secretary for Economic Policy and Neil Mehrotra, Deputy Assistant Secretary for Macroeconomics, raised hopes for a firmer US Gross Domestic Product (GDP). The officials wrote, per Reuters, that gross domestic income (GDI), which measures aggregate income -- wages, business profits, rental, and interest income -- continued to rise in the first quarter at a 1.8% annual pace while GDP fell.

Technically, looking at the H4 chart above the pair is in bearish territory. The pair hasn’t been able to cross the SMA 21 hurdle and any corrective move is capped by the SMA 100 (yellow line). As of writing the pair is at the 134.40 level but is well supported by the SMA 200 at the critical 136.00 mark. If bears are able to break 136.00 further downside could be expected towards the July 8 low of 135.40 level exposing the possibility of further downside. On the other hand, with US recession and FOMC to follow the DXY could stop its rally which could in turn increase the demand for Yen. For a bullish confirmation close above the SMA 100 line is key.