The Japanese yen continues to improve, as Dollar/yen dropped for a second week in a row. The pair dropped close to the symbolic 110 level and posted its lowest weekly close since June. Will the yen’s impressive rally continue into the New Year?

With Japanese banks closed for holidays until Friday, traders can expect the pair to remain subdued. However, the U.S. releases nonfarm payrolls and wage growth on Friday, so there could be some volatility at the end of the week.

USD/JPY fundamental movers

The BoJ Summary of Opinions provided some details from the bank’s December policy meeting, when the bank maintained its ultra-accommodative monetary policy. Policymakers noted that the domestic economy was expanding at a moderate clip, but some members expressed concern over the outlook for the global economy.

Consumer spending and inflation numbers pointed downwards. Retail sales fell to 1.4%, down from 3.5% a month earlier and short of the forecast. BOJ Core CPI, the preferred inflation gauge of the BOJ, and Tokyo CPI both dipped lower in December. In the U.S, consumer spending dropped sharply to 128.1, well below the forecast of 133.7.

See all the main events in the Forex Weekly Outlook

Key news updates for USD/JPY

USD/JPY Technical Analysis

114.60 was the high point in early October and serves as resistance. 114.25 was the high point in November.

114 is a round number and was a stepping stone on the way down. Close by, 113.80 was a resistance line in November.

113.15 was a swing high back in July. 112.25 provided support in early December and it defends the 112 level.

111.65 was a swing low in October, Close by, 111.40 was another swing low in October 

110.40 (mentioned last week), was tested in support during the week, with the pair breaking through on Friday. 109.70 was a swing low in late August and has weakened in support as the pair is hovering close to the 110 level.

Close by, 109.35 was a cushion in mid-July. 108.70 was a cushion early in the summer and 108.10 a swing low in late May.

107.50 capped the pair in early April.

105.66 is the final line for now. It has held in support since early April.

USD/JPY Daily Chart

USD/JPY Sentiment

I am bearish on USD/JPY.

The yen has capitalized on the recent turmoil in the equity markets, as USD/JPY has dropped 3.0% in December. Nervous investors are likely to continue to flock to safe-haven assets like the yen, until there are reassuring signs that the market volatility has subsided.