USD/JPY consolidates weekly gains, remains limited below 113.70

• USD/JPY up over the week despite DXY slide. 
• Surging US yields weakened the yen versus the dollar. 

The USD/JPY pair is about to end Friday little changed compared to Thursday’s close. It moved all day in a small range between 113.45 and 113.25. 

The US dollar was headed toward a weekly gain versus the yen. Despite losing ground against European and commodity currencies, the greenback was able to rise versus the yen supported by higher US yields. 

The 10-year year yield opened the week at 2.35% and is about to end at 2.48%, after hitting 2.50% on Thursday, the highest level since March. Surging yields were the main driver of USD/JPY during the week. Also, US economic data added support. 

The Bank of Japan meeting had no impact. It kept its policy rate unchanged on an 8-1 vote. According to the central bank, the economy is growing moderately and inflation will continue to rise. 

Next week, the economic calendar in the US shows no market movers while in Japan will be a busy week. “On Tuesday, November inflation figures are due. Inflation has been ticking upwards this year but it has been driven primarily by energy prices. The underlying price pressure in Japan is still very low. We will also get an indication of what Q4 private consumption will look like as the November household spending survey and retail sales tick in on Tuesday and Thursday, respectively. The October figures were quite disappointing and a pickup here is key in the process of reflating the Japanese economy. On Thursday, we also get November industrial production figures. The manufacturing sector has been looking strong so far this year and PMIs point to continued progress”, explained analysts from Danske Bank. 

Levels to watch

The weekly chart shows the upside currently capped by the 113.70 area. A rise on top of 114.00 seems likely. A weekly close on top of 114.50 would be a strong bullish signal. Since March USD/JPY is being rejected from that level and a break higher could lead to more gains over the medium-term. 

Currently, the 20-week moving average at 112.30/40 is offering support to the pair. If it drops below, key support levels might be seen at 111.60/70 and then 110.80 (November lows).