USD/JPY moved almost 1% higher in trading yesterday and is up another 0.26% today to trade at 113.65. The move yesterday reflected the largest daily move since November of last year, in what has been a fairly tame FX pair in 2021.
The main driver for this move is rocketing energy prices. Japan is one of the largest energy importers in the world, and so JPY weakness is being seen as the country is effectively importing cost-push inflation.
We like to be short the pair at 113.50. From a technical point of view, the RSI is flagging as overbought. It has also risen to the top of the monthly trend line, suggesting a short term pullback even if the long term trend is still higher. From a fundamental angle, we think it’s only a matter of time before participants step in to cap/stem the moves in the energy market. We will be looking to take profit around the 110.80 region with the daily 20 SMA.