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Outlook for continued strong dollar-weak yen trend

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Naoto Arase, Head of the Fintech Department at PPLS.

Outlook for continued strong dollar-weak yen trend

The dollar/yen exchange rate turned downward from the year-to-date high of 136.93 recorded on February 28, falling sharply to 135.26 due to position adjustments.

PP Link Securities’ (PPLS) Head of Fintech Department Naoto Arase – a Japanese financial expert with some 40 years’ experience – said there were multiple support points lined up on the downside indicated by a 90-day moving average.

And the Ichimoku Cloud technical analysis indicator showed three significant factors (sanyaku) suggesting a strong buy signal.

“A short-term move is expected to test the 200-day moving average traded near 137.21. Considering the uptrend has been established and the Dow Theory upward trend is continuing, it can be judged that the sentiment is strong from a technical point of view.

“In terms of fundamentals, the spread of speculation about the reacceleration of monetary tightening in the US and Europe on observations of Federal Reserve and European Central Bank terminal rate hikes, and receding expectations for an early revision of monetary easing by the Bank of Japan, there are factors that suggest a rise in the dollar-yen and cross-yen exchange rates.

“For example, the monetary policy gap which is expected for the resumption of the yen carry trade due to the widening interest rate differential between Japan, the US and Europe.

“Based on these factors, the market continues to forecast the continuation of the strong dollar-weak yen trend as the main scenario,” said Naoto Arase.

The industry veteran urged caution as to possible downside risks and highlighted this week’s points of interest.

“On the other hand, the risk scenario for the aforementioned main scenarios is the transmission path of disappointing results of US economic indicators, receding speculation on reacceleration of monetary tightening, decline in US interest rates, US dollar selling and dollar/yen depreciation.

“There is also a fear that it will lead to suspicions about the future, so it is necessary to be vigilant against downside risks, just in case.

“Attention on Thursday was focused on the number of new applications for unemployment insurance in the US and the lecture by Federal Reserve Board Director Christopher J Waller,” he said.

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