The USDJPY has been consolidating in an up and down range since April 27. The high on that day reached 131.246. On Monday, a new high was reached at 131.342, but could not sustain momentum despite the break.
The price of the USDJPY has been inching lower this week and fell harder today.
Looking at the daily chart above, the 38.2% of the last run higher (from the March 31 low) comes in at 127.495 (call it 127.50). That is the next downside technical target for the pair. The low price today has reached 127.956. So there is room to roam until reaching that level.
Close risk from the daily chart would be at the old low for the month at 128.60 and then 129.40 (high from April 20 and the low from yesterday was near that level as well). The current price is at 128.207.
Drilling to the hourly chart below, the pair has been trading above and below the 100/200 hour MA since the failed peak on Monday. Yesterday, there was a spike after the higher than expected CPI, but that high stalled near the swing high from last Friday and moved back down.
Today, the price fell below the 50% midpoint of the last move higher at 129.136. The low from last week at 128.615 has also been broken (with some up and down around that level - it is also the 61.8%). The last few hours has seen a move lower to a new intraday low at 127.956. The 128.615 to 128.738 is now a close risk area (see red numbered circles and lower yellow area in the chart below). Stay below keeps the sellers in firm control intraday.
Helping the move to the downside in the USDJPY has been a contraction of the yield spread between US and Japan yields.
Looking at the chart below the spread between 10 year yields between US and Japan, has now seen 4 straight days of declines since peaking at 294 pips on Monday. It is a modest move in comparison to the run higher from March that saw the yield spread widen from 153 pips to 294 pips, but it still is an influence.
The catalyst is the decline in US yields as it shows some sympathy to the stock declines that has the Nasdaq down over -30% from the all time high in November. That has money flowing into bonds on expectations of lower yields.
The problem is the Fed is in the mode that they erred and it is catch up time to reign in inflation. Yields are too low. They need to get to neutral and perhaps higher (Bullard has 5x50 bps for the rest of the year up to 3.5% from 1% currently). Goldman raised its 10 year target to 3.30% at year-end. That's the problem.