The growth of USD/JPY quotes to the area of 10-month highs has given rise to various theories that explain the serious weakening of the yen. They say that the dollar has taken away its status as the main asset-refuge. American macrostatistics are pleasing to the eye, while the Japanese economy is ready to plunge into recession. Finally, the transfer of capital from Asia to America had to affect the analyzed pair sooner or later. I believe that the truth is somewhere near. Many of the above factors look working, however, this could not be done without the speculative component.

For a long time, the "bulls" on USD/JPY could not take quotes above 110-110. 2. As soon as the next storm of resistance was successful, their opponents fled. As a result, the pair grew due to the growth of US stock indices in the hope of PBoC stimulus measures and when they went down due to the mass spread of the coronavirus outside of China. Speculators are clearly carried away by the attacks, playing back the news of a potential recession in Japan, which in fact is not reliable news. The sales tax increase and GDP declined by 6.3% in the fourth quarter. The reduction in the flow of Chinese tourists will negatively affect retail sales in January-March, however, Haruhiko Kuroda does not expect large delays in the recovery of the Japanese economy. The BoJ is not at the stage of discussing monetary policy adjustments.

The dynamics of Japan's GDP

Thus, a downturn is not inevitable, and speculation about expanding monetary stimulus is far-fetched. The "bulls" on USD/JPY clearly overdid it, which creates prerequisites for the correction of the pair. Especially if the data on retail sales and industrial production in Japan for January will not be as weak as Bloomberg experts expect. For once, the yen begins to respond to internal macrostatistics! For years, it ignored the data, preferring to look at data on the US economy. However, due to the coronavirus, the link between USD/JPY and US Treasury bond yields was broken, which confirms the decrease in the correlation to the lowest level since December 2018.

Dynamics of correlation between USD/JPY and US Treasury bond yields

Another proof that financial markets are shaken is the divergence in the dynamics of the yen and gold quotes. These assets have been on the same road for a long time because of their status as havens. In 2020, the situation changed dramatically. However, Haruhiko Kuroda at the G20 summit of Central bankers and Finance Ministers in Riyadh expressed doubts that the currency of the Land of the Rising Sun has lost its status as a reliable asset and explained the USD/JPY rally by the strength of the US dollar. Indeed, the strong position of the US economy and the inflow of capital to the New World securities market allow the USD index to feel confident.

Technically, the inability of the bulls for the analyzed pair to storm the upper border of the ascending trading channel was the first sign of their weakness. A necessary condition for the transition to a full-fledged correction is that the bears hold the USD/JPY quote below 111.45-111.55.

USD/JPY, the daily chart