Dollar vs. Yen: Technical Pattern Increases Likelihood of USD/JPY Decline

Despite the Japanese yen's improvement and its retreat from the 160 level against the US dollar, a level it surpassed at the end of April, it remains unable to break above 155 yen per dollar. This is despite rumors of indirect interventions by the Bank of Japan, as well as numerous verbal interventions through statements by central bank officials and the Ministry of Finance.

Bessent's Japan Visit: What It Means for the Yen Exchange Rate

US Treasury Secretary Scott Bessent announced he will visit Japan on Tuesday to hold talks with Prime Minister Takaichi Sanae and Finance Minister Katayama Satsuki, one day before the anticipated US-China summit in Beijing.

Markets believe this visit will impact the yen's exchange rate for several key reasons:

  • Reduced economic uncertainty: Potential discussions on US-Japan economic relations could decrease Japanese economic uncertainty, supporting a stronger local currency.
  • Foreign exchange coordination: Views are expected to be exchanged on developments in forex markets, given the continued depreciation of the yen against the dollar — a matter Japan has repeatedly flagged in coordination with the United States.
  What's driving the yen outlook?    What's driving the yen outlook?  

Technical Analysis: Falling Three-Methods Pattern on USD/JPY Chart

As shown in the attached chart, a falling three-methods pattern is clearly visible on the USD/JPY exchange rate. This is a bearish continuation pattern, and if confirmed, it signals that the dollar-yen upward trend may be approaching its end.

Specifically, a drop below 155 yen per dollar would:

  1. Confirm the validity of the technical pattern
  2. Strengthening expectations of a continued decline in the USD/JPY rate

Goldman Sachs Forecast Aligns with Bearish Dollar Outlook

Economists' forecasts may align with these technical expectations. Most recently, Goldman Sachs warned about the risks of rising energy costs, noting they could keep the core PCE inflation rate near 3% well above the Fed's 2% target, thereby delaying conditions suitable for monetary policy easing.

Goldman Sachs stressed that the following are needed before the Federal Reserve can cut interest rates:

  • A decline in monthly inflation readings
  • Further slowdown in the labor market
Time frame: daily chart, Tools: SMA200Time frame: daily chart, Tools: SMA200