Is USD/JPY On The Verge Of A Breakout?

USD/JPY is one of the major pairs that currency traders love to trade. In the past few months, it had been ranging between 100 and 103 level and no trend was visible which made it unpopular with the savvy trend traders. However, analysts have started talking of a possible USD/JPY breakout. US economy and the Japanese economy are taking a divergent path. US economic data is showing a better than expected performance while the Japanese economic data indicates a worsening economy. This means USD will get strong and JPY will get weak indicating a possible strong trade.

“I think dollar-yen is going to be an increasingly popular trade based on monetary policy trajectory [of the U.S. and Japan],” said Sean Callow, senior foreign exchange strategist at Westpac.

He expects the dollar-yen pair to trade around the 105 level over the next 1-2 months.

With U.S. bond yields beginning to rise as the Fed moves closer to its first rate hike, Callow says “Japanese investors are likely to find U.S. Treasurys far more attractive in coming months, leading to increased outflows from Japan.”