USD/JPY: Yen struggles to act like safe-haven this week as stocks have worst week since March

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 The Japanese yen is no longer acting like a safe haven currency. With global stocks having the worst week since March, dollar-yen appears poised to finish the week higher.  Wall Street has had a major reset, and now believes that interest rates will stay higher for longer, and is fearful that the Fed might have to deliver more tightly given the strength of the US economy. The global bond market selloff as taken treasury yields two levels that are forcing portfolio managers to adjust accordingly. Short term rates are too attractive, and that should provide some underlying strengths for the US dollar. Today, the yen is on firming footing but some of that is on profit-taking given the big week the dollar has had.

With tech and communication stocks getting hit the hardest, expectations for a safe-haven trade could keep the dollar supported.

The wildcard for the dollar trade will be Fed Chair Powell’s Jackson Hole speech, which could remain hawkish or possibly contain a dovish twist.

USD/JPY Chart

The USD/JPY daily chart has already tested key levels that are making Japanese officials uncomfortable, but given the potential FX flows following Jackson Hole, it seems Japan will wait before intervening. This combination of a return of the king dollar and lagging Japanese yen has served to boost USD/JPY beyond 145.00 and towards major psychological support around the 150.00 level. As long as markets continue to bet on an inflation-fighting Fed and patient BOJ, USD/JPY could target the 148.00 region next week.  With any dovish surprises from Powell, a breakdown could occur below the noted 145.00 psychological support level.

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