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USDJPY Hovers Near 160.0, with the Bulls Emboldened by PMI Data

USDJPY came within touching distance of 160.0 on Friday, hitting an intraday high of 159.62 before retreating to settle at 159.47 at the time of writing.  Having gained 0.3 percent at the time of writing, the pair was on course to end the week with gains exceeding 1.3 percent. Furthermore, the US dollar has recorded the first 7-day winning streak against the yen since March, underlining the bullishness around the USDJPY pair.

The Japanese yen was already nosediving under pressure from the US dollar, whose macroeconomic fundamentals were relatively weak for the most part this week. The yen’s troubles had been exacerbated by the BoJ’s decision to delay trimming its bond-buying until July. On the other hand, a weak yen has made Japan’s imports more expensive, which could help in the fight against long-running deflation.

However, Japanese monetary policymakers have not shied away from admitting the difficulty in balancing the adverse effects of a weak yen and deflation. That said, the BoJ’s intervention in May seems to have had short-lived benefits, and the bank’s reluctance to intervene has emboldened USDJPY bulls to put stronger bets on the pair.

With the currency pair looking likely to hit the 160.0 mark, it is almost certain that the BoJ will intervene.  However, that, too, is a delicate undertaking- another market intervention by the BoJ with short-lived benefits that could be detrimental to not only the yen but also have far-reaching implications on the Japanese economy. With the US dollar strengthened by forecast-beating S&P Services and Manufacturing PMI figures, the dollar bulls will likely push the USDJPY pairs to the limit, albeit with calculated risks.

Technical analysis

The momentum on USDJPY will likely continue favouring the upside if the buyers keep the price above 159.46. The next resistance will likely come at 159.62, beyond which the upside will test 159.75. Conversely, the sellers will likely take control if the pair brakes below 159.46. In that case, the first support could be established at 159.32, and a break below that mark will invalidate the upside view. Also, it could build the momentum to test 159.15.