Looking ahead into February 2023 (Yen) for FX:USDJPY by JinDao_Tai

Not very long ago, we saw the Yen weaken to historic lows, with the USDJPY climbing to an all-time high of 152. But that was in Oct last year! Since then, the USDJPY is in a strong downward trend.

In January, the upside on the USDJPY was capped at the 134.50 price level, with the price generally trading lower, to the key support level of 127.60. The move lower was primarily driven by the weakness of the DXY but volatility was also increased due to 2 key news events from the Bank of Japan (BoJ).

1) On the 12th of January (one week before the BoJ meeting), there was news that the BoJ will review the side effects of its current monetary policy . The BoJ is the only major central bank still adopting an easing monetary policy (negative interest rates, quantitative easing).

Therefore, the idea of a review of the monetary policy spurred markets into anticipating the introduction of tightening policies. Because of this, the USDJPY broke strongly below the 131 price level to trade down to 127.60.

2) Price consolidated between 128 and 129 in the lead-up to the BoJ meeting on the 18th of January. The BoJ monetary policy was released with no changes and no mention of a review of the current monetary policy . A major upset to what the market had anticipated.

This resulted in the USDJPY immediately spiking strongly to the upside to retest the 131.30 price level. However, the resistance level held strong, with the price retracing back down to the 127.60 price level again. (The USDJPY continues to trade within the range)

Where could the Yen head to in February?

The good news is, there is no BoJ meeting for the month. This means that it is unlikely that the current monetary policy is less likely to be changed (for now).

However, do not rule out the possibility of surprise news releases (like when the BoJ surprised markets by widening the yield target band on the 20th Dec 2022).

This also implies that the volatility and next directional bias of the Yen could be dependent on the base pair that it is traded against.

Expecting a recovery in strength of the DXY in February, the USDJPY could break out of the current consolidation to climb beyond the 131-round resistance level . However, the anticipation of a review by the BoJ is likely to continue to weigh on the Yen, limiting the potential for significant upside moves.

Beyond the 127.60 support level , the next key support level is at the 126 price area. The immediate resistance level is at 131.30 and the next key resistance level above that is 134.50.