In the past two days, the USD/JPY pair has moved up and down within a narrow range. It has traded between 110.01 and 110.45. The narrow range has come even as we have received major news from Japan and the United States.
First, on Tuesday, we received news that North Korea was throwing doubts for the summit with the United States. In a strongly-worded statement, the North Korean government said that it would resist having a meeting to lecture it on denuclearization. An exit from the meeting would mean a return to the escalation that we had a year ago.
Then, yesterday, we received news that the Japanese economy had broken the longest winning streak in 28 years. The report showed that the economy contracted in the first quarter, weighed down by low personal consumption and low capital expenditure. This further brought down hopes that the BOJ would move to hike rates in the near future.
With all the sad news, why didn’t the yen fall significantly against the dollar? The main reason is that the negative news on the country’s economy were mitigated by the North Korean issue. This is because traders view the yen as a safe haven if there is an escalation in the region because of its vast holdings Japan has abroad.
Experts believe that the meeting may take place as Donald Trump seeks a political win. In addition, the surging treasury yields will likely take the dollar higher. As such, the pair could be in for a reversal as traders pay more attention to the monetary policy issues. If this happens, traders should watch out for the pair to fall below 110 and possibly test the 38.6 Fibonacci Retracement level of 109.9.