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Japanese Yen Forecast: SVB Fallout Uncertainty to Weigh on USD/JPY

US Dollar, Japanese Yen, USD/JPY – Technical Outlook: USD/JPY TECHNICAL OUTLOOK – BEARISH

The Japanese yen could gain further against the US dollar on the uptick in risk aversion amid uncertainty related to the fallout from the closing of the SVB Financial Group.

US Treasury yields tumbled and safe-haven currencies, including JPY and CHF, rallied after the largest bank failure since the Great Financial Crisis created ripples across the banking sector on concerns regarding the spreading of contagion within the sector and/or other sectors of the broader economy. The MSCI US Financials sector index is down 6.00% since Thursday, while the S&P 500 index is down 3.3%.

On technical charts, USD/JPY’s fall below support on a horizontal trendline from mid-February at about 135.25 confirms that the upward pressure has eased. While the pair stays below Friday’s high of 137.00, there is a risk of a drop toward 132.50-133.00 (including the 50% retracement of the rise from January and the early-February high).

USD/JPY 240-minute Chartimage1.png

Chart Created Using TradingView

In recent weeks, USD/JPY has faced a stiff barrier around 137.00-138.20, including the 200-day moving average and the December high of 138.20, and Friday’s slide raises the odds that the two-month-long rally may have run its course. For more discussion, see “Japanese Yen Forecast: High Bar for USD/JPY to Crack Resistance”, published February 26.

Worries regarding SVB overshadowed the closely watched US jobs data afterUS Fed Chair Powell in his semi-annual testimony to Congress stepped up hawkishness, saying the ultimate rate peak is likely to be higher than expected and the central bank is prepared to increase the pace of rate hikes, depending on incoming data. US non-farm payroll grew 315,000 in February, Vs 224,000 in February, slower from 443,000 in January, and unemployment rose a bit to 3.6% from near the five-decade low of 3.4%.

USD/JPY Daily Chartimage2.png

Chart Created Using TradingView

Meanwhile, the Bank of Japan decided to leave its ultra-easy policy unchanged at the BOJ Governor Haruhiko Kuroda’s last meeting as the central bank chief. The move was widely expected given the Japanese central bank adjusted the yield band as recently as December. (See “Japanese Yen Plunges Vs US Dollar As BOJ Keeps Policy Settings Unchanged”, published Mar. 10).

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