USD/JPY: Here’s why the Japanese yen has spiked recently

The USD/JPY price erased earlier gains in overnight trading even after the relatively weak economic data from Japan. The pair is trading at 104.86, which is 0.85% below last week’s high of 105.76.

Dollar hegemony at risk?

The USD/JPY is falling mostly because of the weak US dollar. Indeed, the dollar index has dropped for the past three consecutive days. The weakness started on Friday when the Bureau of Labour Statistics (BLS) published relatively weak US nonfarm payroll numbers. 

The weakness continued yesterday when some analysts started to question the dollar hegemony after Elon Musk revealed that Tesla had invested $1.5 billion in Bitcoin. As such, investors are questioning whether the dollar strength will ever come back especially because of the actions of the Federal Reserve. 

The US dollar also dropped after signs emerged that the US will pass another record stimulus package. Last week, Congress passed the initial steps of the $1.9 trillion package proposed by Joe Biden. Therefore, there is a possibility that the new stimulus – on top of the $900 billion passed in January – will pass in March. 

Weak Japan data

The USD/JPY is falling even after weak economic data from Japan. In a report released earlier today, the Ministry of Finance said that the country’s overtime pay dropped by 8.9% in December after falling by another 10.80% in November. This growth has been negative since July 2019. Analysts watch the number because it is a proxy for the performance of Japanese companies.

In the same month, the average cash earnings dropped by 3.2% after falling by 1.8% while the overall wage income of employees fell by 3.2%. 

Later this week, the USD/JPY will react to the US inflation numbers and the Japanese producer price index (PPI).

USD/JPY technical analysis

A few weeks ago, I made the bullish case for the USD/JPY price based on the flag pattern. This pattern worked out and the price managed to reach a high of 105.76. However, the pair has erased some of its gains in the past few days. This reversal is notable since it happened at 105.76, which was also the highest level in November.

On the four-hour chart, the 15-day and 25-day moving averages are also close to a bearish crossover. Oscillators like the Relative Strength Index and MACD have also turned lower. Therefore, the pair will likely continue falling as bears target the previous double-bottom at 104.76 and then resume the previous uptrend. Still, you should use tools provided by your forex broker to mitigate your risks.