USDJPY buyers intensify activity as they approach recent lows

The USDJPY currency pair is approaching the early August lows after an unsuccessful attempt to break through the 150 level. After 3 sessions of steady decline, yesterday’s trading finally saw the bulls become active. Approaching the 144 level increases the attractiveness of opening long positions in anticipation of a bounce higher. The 147.5 level may become a target for USDJPY buyers.

According to the U.S. Commodity Futures Trading Commission, currency market participants have dramatically changed their stance on the yen in recent weeks. In July, the net short position on the Japanese currency reached a 17-year high of 184,000 contracts. Currently, there is a net long position of 23,000 contracts. Analysts polled by Reuters believe that such rapid changes do not fully reflect the Yen’s potential.

Goldman Sachs experts said that the strategy of curry trade using the yen as a funding currency remains attractive. According to them, from a fundamental point of view, the dollar is a much stronger asset than the Japanese currency. The main reasons for this assertion are the differences in interest rates and GDP growth rates between the U.S. and Japan. Although USDJPY is not expected to return to multi-year highs, this does not mean that it will automatically move into a downtrend.

Bloomberg analysts also point to the damage that the strengthening yen is doing to exporters. They estimate that the country’s largest companies derive almost 50% of their sales from the global market. A 1-yen depreciation of the dollar reduces the profits of Japanese multinational corporations by 0.4–0.6%. Rie Nishihara of JPMorgan Securities believes that most companies expected the USDJPY exchange rate to be around 150 this year. If the Japanese currency gets stronger, it will be a negative factor for the country’s economy.

One of the Stochastic‘s lines has reached the oversold zone, and a full-fledged buy signal for USDJPY may soon be formed. The next benchmark for a short-term rebound may be 147.5. After that, another move towards the 150 level is possible.

Consider the following trading strategy:

Buy USDJPY in the range of 145–145.5. Take profit — 147.5. Stop loss — 144.