USD/JPY: Japanese yen could jump to 108 against the dollar

The USD/JPY price has dropped for the past consecutively as this week’s dollar sell-off accelerated. The pair fell to 108.65, which is 2% below the highest level this year.

US dollar sell-off

The USD/JPY has been on a downward trend even as the Japanese economic outlook remains blurry. The country has experienced a surge in coronavirus cases even as the government continues its vaccination efforts. 

Tokyo recorded 729 new coronavirus cases on Wednesday, the highest level since February this year. This is happening even as Japan’s vaccination trend continues lagging behind other countries. The country has vaccinated less than 5% of the total population, which is lower than other countries like the UK and the United States.

It is against this backdrop that the Bank of Japan (BOJ) governor, Haruhiko Kuroda warned about the recovery. In a statement, he said that the economy is on recovery mode, this growth could be elusive because of the pandemic. 

The USD/JPY has also been falling even after the impressive US consumer inflation numbers that were published on Wednesday. The data revealed that the overall CPI rose to 2.6% in March because of the relatively higher gasoline prices. 

The core CPI also rose to 1.6%. The dollar has dropped because analysts believe that these inflationary pressures are relatively temporary. Indeed, as shown below, the 10-year government bond yield has fallen after the inflation numbers.

And today, the US published strong economic numbers. The country reported that the overall retail sales rose by 9.8% in March this year as the residents spent their stimulus checks. This was an improvement after falling by 2.7% in February this year. In the same period, core sales rose by 8.4% after falling by 2.7% a month before. 

USD/JPY technical forecast

The four-hour chart shows that the USD/JPY pair has been on a strong downward trend. It has already moved from 110.96 to 108.77. Further, the pair has dropped below the 25-day and 15-day exponential moving averages (EMA) while the Stochastic oscillator has moved to the oversold level. It has also dropped below the first support of the standard pivot points.

Therefore, in my view, the USD/JPY pair will keep falling as bears target the second support at 108.00. This price is 0.80% below the current level. However, a move above the pivot point at 110 will invalidate this trend.