As of late March, the dollar/yen has mostly consolidated in the wake of the huge collapse. Solid support has developed at the 115.00 level, while resistance at 118.50 has capped rally attempts.
“I think we might end up seeing dollar/ yen in a range between 115.00 and 120.00,” says Rhonda Staskow, regional director of FX Americans at Thomson Financial IFT Markets Forex Watch.
Monetary policy is likely to remain on hold in Japan over the near term, in large part because of the lack of imminent inflation. Another key factor, though, which will likely keep the BOJ on the sidelines, is the July Upper House elections in Japan.
“The market widely believes they won’t tinker with monetary policy around the election,” Powell notes.
The start of the new fiscal year on April 1 will likely open the door for seasonal outflows from Japan.
“Traditionally, that weakens the yen in the new fiscal year,” taskow says.
Callow agrees, predicting that Japanese investors — mostly households — will resume buying foreign bonds, driving the dollar/yen to break its ranges on the topside.
“This could extend as far as 120/121, but probably won’t take out the first quarter highs around 122.00,” he says.
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