Japanese yen experiences significant depreciation, reaches highest level of the year

Economic data affecting the Japanese yen

The Japanese yen has experienced a significant decline against most major currencies following the release of weak economic data, along with market anticipation of the US debt ceiling crisis.

Data reveals that the Producer Price Index (PPI) in Japan recorded 5.8% in April, compared to the previous reading of 7.4%.

The depreciation of the yen can also be attributed to the meeting of the Japanese Cabinet Economic Council, which urged the Bank of Japan to assess the impact of its monetary policy on the economy. The council also emphasized the necessity for the bank to terminate its quantitative easing policy once inflation rates stabilize at the bank's targeted levels.

In terms of trading, the USD/JPY pair experienced a slight decline at the beginning of today's trading session, hovering near the 138.00 level.

The key levels and expected scenarios for the USD/JPY pair

The USD/JPY pair has shown an upward trajectory and approached its highest point of the year, reaching around the 138.00 level. This level represents a robust resistance area that has been tested multiple times without a successful breakthrough. It holds significant importance in determining the pair's direction in the short and medium term.

Here are the expected scenarios for the pair's movement:

1- If the pair fails to surpass the resistance level of 138.00 and remains above it for at least 4 hours, this area could impede its current ascent, leading to a potential retreat towards the correction level of 135.30/135.00. It is advisable to refrain from buying or selling around the current area until the pair's direction becomes clear. Even if there is a temporary downward rebound, the short-term trend of the pair remains bullish, suggesting the correction might be temporary.

2- If the pair successfully breaks through the 138.00 level and maintains its position above it for more than 4 hours, it serves as a strong signal of an upward trend. In this case, it is likely that the pair will extend its rise towards the levels of 140.00 and subsequently 142.00.

3- Should the pair decline from the current level of 138.00, failing to breach it, and retraces to test the support level of 134.00, a breakthrough at this level might confirm the pair's weakness to sustain its upward momentum. It could indicate a further decline towards the levels of 132.00 and then 130.00. If the latter level is breached, it is expected that the pair may continue its decline, potentially testing the previous low recorded around the 127.40 level.