USD/JPY price forecast – time for a temporary setback?

Summer trading this year is as slow as slow can be. In fact, the 2023 FX market’s volatility was remarkably low.

However, it does not mean it will remain the same in the months left until the end of the trading year. After all, only four months ago, in March, the financial world was extremely worried about the US regional banking system.

So concerned were investors that they sold the USD/JPY (i.e., a bellwether for the financial market’s stability) from 137 to below 130 – a stunning seven big figures drop.

Yet, as it turned out, the so-called “crisis” was nothing but an opportunity for traders to load up more USD/JPY longs. The currency pair now trades above 142, right in the middle of an important range for technical traders.

Before looking at the technical perspective, let us show what Japanese inflation looks like right now. In short, it is well above the Bank of Japan (BOJ)’s target.

The reader should focus on the New Core CPI – a measure that excludes energy besides fresh food. The data suggests that inflation in Japan is the highest in the last two decades, and there are few or no signs of a meaningful reversal.

USD/JPY price forecast: what comes next – 152 or 136?

The technical picture is complicated for at least a couple of reasons.

First, this is the daily timeframe, meaning time is needed for a meaningful breakout. Right now, the market is in the middle of a critical range – far away from 133, and equally far from 152.

In other words, it can go both ways.

The key to interpreting this chart is the limiting triangle shown in black on the chart above.

The notion of a limiting triangle tells much about what the future price action might look like. More precisely, it tells levels the market should reach. Moreover, it also tells the sequence the market should reach those levels.

Second, because the market is in the middle of the range, it is equally difficult to go long here as it is to go short.

Coming back to the sequence mentioned earlier, the market should reach specific levels; the technical analysis picture is clear – USD/JPY should first go to 152 and then to 132. However, it may do so in one month, in a quarter, or even twelve months. In the meantime, it can dive to 138 or 135  before bouncing higher.

Summing up, it is no surprise that the USD/JPY is in the middle of a critical range during the summer trading months. Make no mistake, by the end of September, it will be clear to everyone where the USD/JPY will go next.

My take is that it will first reach 152 and then 132, but for now, patience is needed.