USD/JPY ripe for a bullish breakout as Japan starts new restrictions

USD/JPY ripe for a bullish breakout as Japan starts new restrictions
Written by:
Crispus Nyaga
January 14, 2021
  • The USD/JPY pair seems to be ripe for a bullish breakout.
  • Japan announced new restrictions to curb the coronavirus pandemic.
  • A stronger dollar could happen if the Fed shifts its tone.

The USD/JPY is relatively unchanged ahead of important speeches by Joe Biden and Jerome Powell. Forex investors are also reacting to Japan’s new coronavirus restrictions. It is trading at 104.00, which is slightly below this week’s high of 104.40.

USD/JPY
USD/JPY price action

Japan new coronavirus measures

The number of coronavirus cases in Japan has been on an upward trend recently. The country confirmed more than 5,800 new cases earlier today, bringing the total count to more than 304,000. Deaths increased by 97 to more than 4,000. 

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As a result, the government extended its measures to curb the spread. Earlier today, it said that it would extend its state of emergency to more provinces. It will also ban all foreign nationals from entering the country to prevent the new strain of the virus. 

Japanese citizens will be allowed but they will go under quarantine. Also, the new order asked companies to promote working from home. Also, there are signs that the Olympics will not be held in the country this year. 

These new restrictions will possibly affect the Japanese economy. Earlier today, data by the statistics office showed that core machinery orders increased by 1.5% in November. This was lower than the previous month’s increase of 17.1%. The orders fell by 11.3% on an annualised basis. 

Meanwhile, the producer price index (PPI) bounced back by 0.5% in December leading to an annualised decline of 2.0%. The two numbers were better than the median estimates of 0.2% and -2.2%, respectively.

The USD/JPY will later react to statements by Jerome Powell and Biden. In his speech, Powell will likely talk about the state of the economy and what the bank is prepared to do. He could signal that rates will come earlier than expected. Biden will unveil the price tag and details of his stimulus plans.

USD/JPY technical outlook

USD/JPY
USD/JPY technical chart

On the daily chart, we see that the USD/JPY pair has formed a falling channel. It connects the highest and lowest levels since June. The price is now slightly below the upper side of the channel. It is also between the middle and upper lines of the Bollinger Bands. However, the pair seems to be forming a bullish consolidation pattern. This means that it will possibly break-out higher.