The USD/JPY exchange rate recorded 139.57 on September 16, 2024, its lowest level since July 28, 2023, and is currently trading near the 144.00 levels. It appears that negative momentum will dominate in the coming period, driven by several fundamental and technical factors.

Fundamental Factors:

• The headline Consumer Price Index (CPI) rose by 3.0% year-on-year in August, higher than the previous reading of 2.8%. The core CPI (excluding food) also increased by 2.8% year-on-year, in line with expectations but higher than the previous reading of 2.7%. Inflation remains far from the Bank of Japan’s target rate of 2%.
• The election of Shigeru Ishiba as the new prime minister adds further uncertainty to the markets, especially given his previous statements supporting a tighter monetary policy, which may include raising Japanese interest rates in the near future.

Technical Factors:

• A bearish crossover occurred between the 50-day moving average (blue), which stands at 145.66, and the 200-day moving average (yellow), which is at 150.95, on September 6, 2024.
• The Positive Directional Index (DMI+) is around 14 points, while the Negative Directional Index (DMI-) is approximately 23 points. The gap between these two indicators is relatively large, indicating strong selling pressure on the USD against the JPY. Moreover, the Average Directional Index (ADX) is around 31 points, signaling strong momentum in the downward trend.

Support and Resistance Levels:

• If the pivot point of 143.07 for USD/JPY is broken, the support levels of 142.21, 140.78, and 139.92 may be targeted.
• In case the pivot point is surpassed, the resistance levels of 144.49, 145.36, and 146.78 could be in focus.

There seems to be a positive correlation between the Nikkei 225 index and the USD/JPY pair. Currently, the strength of the yen against the dollar (i.e., the decline in the USD/JPY exchange rate) reduces the attractiveness of Japanese stocks to foreign currency investors.

Please note that this analysis is provided for informational purposes only and should not be considered as investment advice. All trading involves risk.